Macroeconomics
The decline of the dollar relative to the world's major currencies hascaused concern among many executives, academics and policy planners in thiscountry and abroad. The article from which this paper is based on is fromthe on-line version of BusinessWeek magazine titled, "The Falling Dollar'sWorld of Hurt," dated January 26, 2004. The subtitle of the article,written by David Fairlamb, states that, "A continued decline would mean badnews for just about every part of the globe, and that has World EconomicForum attendees worried." The article follows the discussion that tookplace at the World Economic Forum's annual meeting in Davos, Switzerland atthe end of January. The assumption of those at this meeting was that eventhough the U.S. economy continues to show strong growth, the dollar wouldcontinue to fall, especially against the Euro. A further assumption at theconference was that the dollar would continue to lose another 10% to 20%value against the Euro throughout the rest of this year, where many havepegged it at $1.40 to $1.50 per a‚¬1.00 by early 2005. The large
According to the Mundell-Fleming Model, (Mankiw 1992) if a country's domestic interest rate is lessthen the world's interest rate, the net effect is investors look elsewherefor investment opportunities for their assets. The supply and demand dynamics of the dollar verses other currencies,especially the euro, is in part what is driving the dollar down. In the Middle-Eastern oil producing countries,according to Fairlamb, they price oil and gas exports in dollars, butimport much of their goods and services from Europe. A floatingexchange rate means that a country's central bank allows the exchange rateto adjust to changing economic conditions. because ofrelatively cheaper prices to international consumers. This holds true forRussia as well. This has hurt theEuropeans, according to the article, because their current economicrecovery is being fueled in large part by their own exports. In this case, the UnitedStates' current interest rate of 1%, is half that of the European CentralBank's 2%, according to the article. " This would increase analready high rate of unemployment in Europe and further exacerbate tradeand economic tensions between the EU and the U. There are littleoptions for substitutes in the short run, with possibly the Euro becomingthe only viable contender. In addition,many world currencies are pegged to float with the dollar and has causedproblems in many developing nations where the weakened dollar has meantincreased prices for imports, such as oil.
Common topics in this essay:
European Union,
Central Bank's,
Switzerland January,
,
Model Mankiw,
World Hurt,
David Fairlamb,
Economic Forum,
United States',
Economic Forum's,
according article,
exchange rate,
floating exchange rate,
value euro,
floating exchange,
according fairlamb,
especially euro,
world economic,
dollar relative,
european union,
european companies,
|
Acceptance Essays
