Price Changes of the U.S. Dollar Essay

Submitted By danielgao2011
Words: 695
Pages: 3

“The recent (past 12 months) price change of the U.S. dollar in the foreign exchange market and its impact on American companies.”

The U.S. dollar has taken a plunge in value in recent years due to several crucial U.S. markets facing economic explosions. The value of the U.S. dollar has far reaching effects and can influence markets worldwide. As the U.S. has struggled economically, the rest of the world followed. The U.S. dollar has lost much of its value in foreign markets has had a noticeable impact on American companies. Foreign exchange rates are important because “changes in FX rates affect the value of products and financial instruments” ("U.S. foreign exchange," 2007). This change can have a large impact on markets, international investments, and import and export prices. Ultimately, affecting inflation and economic growth of the country. The effect of the American dollar’s recent changes means when an American travels to another country and tries to exchange the dollar for currency of the country they traveled to the traveler will receive less than what the original dollar amount was. The demand for the currency plays a large part in the exchange rate. Following this logic, the exchange rate is dependent on several different occurrences. In this case, the exchange rate is dependent on the economic slide of the U.S. When the dollar is worth less worldwide more American dollars are needed to meet the value of the currency elsewhere. The exchange rates of other countries have caused and have been affected by the decline of the U.S. dollar. For example, The Obama administration believes “that China's undervalued currency keeps prices of its exports low, putting U.S. manufacturers at a disadvantage” (Chu, 2011). The Chinese inflation issues are leveling the playing field, once again. As the value and demand for the American dollar declines, prices increase in the U.S. for goods. A foreigner will be able to buy more goods after exchanging their own currency than could be bought with the American dollar for the same product. “The higher relative prices of imported products will also induce American households to shift consumption from goods made in low-wage countries to services produced in the U.S.” (Felstein, 2011). Items become more costly to buy with the American dollar, especially in other countries. As the cost of these goods rise in the U.S., U.S. citizens pay more. This creates a continued slide in the value of the U.S. dollar as fewer Americans are buying the goods, in turn cutting into the revenues of the companies producing the products. American companies, and the economy, are hurt by consumers buying less because the value of the dollar has decreased. A strong American dollar