Question

Discuss the advantages and disadvantages strengthening (appreciating) dollar on:

a. U.S. consumers

b. Americans traveling overseas

c. U.S. exporters

d. U.S. importers

e. Foreigners visiting the U.S.

Answer 1

Currency appreciation means increase in the value of own currency in relation to the other currencies.

a) US consumers- Because of dollar appreciation, the US consumers can now buy the foreign goods at a cheaper price. However, they need to pay more for the exported goods from the US.

b)American travelling overseas- People travelling outside America have to shell out less dollars in comparison to other currencies for their expenses thus making their travel much cheaper compared to other situations. This is because dollar is much stronger than the other currencies.

c) US exporter- The currency appreciation causes the goods produced in US expensive as compared to those outside US. thus, the demand for US goods fall and exports suffer backslash from the demand side.

d) US importers- As the currency appreciation, the exchange rate decreases, US producers will be worse off. Foreign goods will be cheaper and thus will lead to comparative disadvantage for US produce. Thus, the import volume will increase in the US.   

e)Foreigners Visiting the US- As the currency appreciates, the US goods and services become costly. This will lead to a negative impact on the tourism as well since the services will become costly as compared to other scenarios. Thus Foreigners visiting US will have to shell out more from the pocket.