Foreign Exchange Paper
A country's currency is a gauge of how well that country's economy is doing. "Currently the United States has a 3% real rate of return. The short-term interest rate is 5.25% and the inflation rate is 2.25% based on the core-rate from the GDP numbers" (Kordell, 2008).
If one compares our real rate of return with other countries; Canada +2.50, Britain +2.50, Euro FX +0.25, and Japan +1.15 one can see that money tended to flow towards the U.S. over the past several years ever since the monetary policy was changed and interest rates in the U.S. started to rise. (Kordell, 2008)
The American dollar has been the world's principal currency since the end of World War II (Wong & Khan, 2006). "Following the breakdown of the Bretton Woods system in 1970, the US dollar has been the benchmark for other national currencies. No other currencies, the deutsche mark, yen or the pound sterling, have come to being a close contender for the dollar's international role" (Wong & Khan, 2006).
"An international currency can be defined as a currency that is used by residents outside the country of issue. It performs the same functions as that of any other national currency- as a medium of exchange, store of value, and unit of account" (Wong &Khan, 2006). Hartmann and Issing (2002) cite the following factors as key to determining the choice of international currency: (1) the size and strength of the domestic economy (2) the depth, breadth, liquidity and degree of openness of the domestic financial markets (3) the convertibility of the currency (4) historical bias. The euro has made considerable developments as an global financing currency. "Recent years have seen an increase in the net issuance of euro-denominated bonds over that of the dollar" (Wong & Khan, 2006).
Table 1 compares the relative economic size and strength of the US, Euroland, and Japanese economy.
United States Euro Japan
Population (million) 270 291 126
Employment (million) 131 114 65
GDP ($bn) 8510 6471 3780
Financial Assets 33828 16648 12414
% of GDP 11.9 16.1 10.5
Share of world exports (%) 16.5 19.0 8.5
Macroeconomic performance
CPI Inflation (%) 2.2 1.1 -0.3
GDP Growth (%) 4.0 2.0 0.5
Unemployment Rate (%) 4.1 10.0 4.6
TABLE 1: THE EURO AREA COMPARED WITH US AND JAPAN
It can be clearly seen that the euro compares positively to the US in most aspects. Population size, employment levels and the value of GDP are fairly close for the Euro area and US and the euro area outperforms the US in terms of the percent of GDP.
In a healthy economy, the increase in inflation probably points to higher interest rates, this will favor the currency under discussion, in this case, the dollar. However, many factors determine exchange rates, and all are related to the commercial relationship between countries.
Strong is good. Weak is bad. These generalizations sound simple enough, but they can be very confusing when come to money. Is a "strong" U.S. dollar always good? Is a "weak" dollar always bad? Understanding of it is a necessary in marketplace. The term such as “Strong” and “weak” dollar is a “hot topic” which always bandied about by economist on a daily basis and also public. This issue is so important to almost every one. It seems like part and parcel of people who very concern about currency likes investors, economist, foreigners who study or working in the United State and so on.
The European Union today is a political and economic entity that controls in a single market located mostly in Europe exploiting Euro as a single currency uniting the vast majority of its members. The market that all European Union members share provides free trade of goods and services as well as a common external tariff. One might argue that the European Union would not perceptible its current influence had it not been for the introduction of the Euro. Speaking of the benefits of the Euro, one can name the elimination of exchange rate problems, creation of a single financial market, providing price stability, low interest rates as well as being a political symbol of unity and commitment to the Union. Today, Euro is the second reserve currency in the entire world - a fact that clearly speaks for itself of its value in the global market.
...such methods have led not only to intervallic spikes of high inflation, disastrous devaluations and financial troubles, but also to enduringly elevated nominal and real interest rates. The possibility of devaluation precludes integration into the global financial markets. The power to devalue has not catapulted exports over the longer term. Actually, it is just the opposite. It has seen to locking developing nations into low valued-added products exposed to wide and unpredictable price shifts. The country of El Salvador calculated the pros and cons of having domestic currency through two consecutive administrations and, ultimately, made the choice to dollarize based on their critical examination. Some countries may discover it practical to conduct their own analysis, and others may find it valuable to embrace the monetary services provided by the dollar global economy.
Walker, Bruce. "Euro Likely to Keep Losing Value." The New American. The New American Magazine, 7 July 2010. Web. 23 May 2011. .
Analyzing the process leading up to the euro and the looking at the possible advantages and disadvantages that will result from the new currency are the key issues of this essay. The first section looks at some of the requirements leading up to the euro, including some of the specific fiscal goals required by the EMU regarding prospective members in 1999. The second section looks at some of the economic reasons for European Union countries to adopt the euro, focusing on the elimination of exchange rate fluctuations, increase trade overseas and across borders, and expanding markets for business as some of the advantages of euro currency countries. Price transparency, another advantage of the euro, is the focus for section three. Price transparency is the ability to easily recognize price differences between countries, which was not possible pre-euro. The paper then points on some effects of the euro on American businesses its economy. The updating of financial and accounting IT systems was the main adjustment discussed that U.S. multinationals must deal with. The paper then briefly looks at tourism, and how that industry of Europe is affected by the euro. The paper then looks at the euro introduction from a political standpoint, explaining if the EU goal of “political unity” is actually possible. The essay finally discusses the future of the currency, asking the question “Can the euro survive?”
Everyday, millions of transactions take place around the world. However, each transaction effects more than just the two people or companies exchanging goods. As an aggregate, those transactions make up the world economy, the fluctuations of the world economy, and the currency used in the world economy. The United States dollar is one of the most secure and backed currencies in the world, and for that reason, the US economy is often looked to as a model to other nations. There was no exception when the newly formed Israeli government looked to make an economy of its own. The Israeli shekel and the United States dollar have a short, but important, history of interacting with each other. As will be explained, the history of the Israeli shekel plays an important role in understanding the actions taken by the Israeli National Bank. Today, the new Israeli shekel can be analyzed and understood as a complex and growing part of the world economy and a currency that will likely continue to grow and stabilize in the future world economy.
The U.S. economy has acquired significant structural imbalances, including our record-high $503 billion trade account deficit (5% of GDP), a $6.9 trillion dollar deficit (60% of GDP), and the recent return to annual budget deficits in the hundreds of billions. These imbalances are exacerbated by the Bush administration's ideologically driven tax and budget policies, which are creating enormous deficits for the rest of this decade. These factors would significantly devalue the currency of any other nation under the "rules of economics.' Why is the dollar still the predominant currency despite these structural imbalances, and why does it appear immune from our twin deficits? While many Americans assume the strength of the U.S. dollar merely rests on our economic output (GDP), the ruling elites understand that the dollar's strength is founded on two fundamentally unique advantages relative to all other hard currencies.
currency status as a result of the China-US trade relationship. Journal of Global Business and Technology, 10(2), 43-59. Retrieved from Business Source Complete
The United States Dollar (USD) or its sign was ($) is referred to as the U.S Dollar, and also as the American Dollar. It is the official currency to the Unites States and its overseas territories. The currency of United States Dollar was divided into 100 smaller units called cents (Wikipedia, 2014). The United States Dollar is often used in the traded process because of its high value. There were five major reason of why the U.S Dollar is so widely used in the traded. The reason is as below:
Their ease of conducting business and trading across borders ranks favorably for American consider expanding in Canada (Cubbage et al., 2010). The U.S. dollar because of its strength and purchasing power is attractive to many other countries including Canada. Imports and exports play a vital role in the attractiveness of the dollar. If a wood produced in Canada is less expensive than wood produced in the U.S. imports will escalate, and exports will plummet. These factors result in the U.S. dollar being more or less enticing to consumer and investors at various intervals. Robson & Laidler (2002) explored the possibility of Canada adopting the U.S. dollar as their official currency. They argued it reduces the cost of transactions and improves decision-making in Canada. Each government can print money based on a need to combat events such as inflation and deflation and, in turn, affect the exchange
Here is the graph of the value of Bitcoin since its creation, we define the value is globe Bitcoin price index(GBX) – Bitcoin(BTC) to United States Dollar(USD).
During the year 2012, Australian Dollar (AUD) is the 5th most traded currency in the world, accounting for 7.6% of the world’s daily share. The Australian dollar is popular with currency traders because of the comparatively high interest rates in Australia, the relative freedom of the foreign exchange market from government intervention, the general stability of Australia's economy and political system, and the prevailing view that the Austra...
The value of the US dollar relevant to other currencies is a major consideration for the Federal Reserve. If they prevent large changes in the value of the dollar, firms and individuals can comfortably plan ahead to purchase or sell goods abroad.
The US, and many countries, used to peg currency to gold. The British Pound used to be equivalent to ¼ ounce of gold. The French Franc was 1/20 ounce of gold. However this pegging was abandoned in the 20th century. Current monetary policy seeks to achieve national economic goals, which often come at the expense of countries with weaker currency.