Strong or Weak Dollar Is Better?

Topics: United States dollar, Foreign exchange market, Currency Pages: 5 (1921 words) Published: October 26, 2008
Strong or Weak Dollar is Better?
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. What strong dollar and weak dollar mean? Strong dollar is strong in compare to other foreign currency while weak currency mean dollar weaker than other currency. The terms strong and weak, rising and falling, strengthening and weakening, appreciate and depreciate are relative terms in the world of foreign exchange. Recently, Federal Reserve cut the interest rate by half and another quarter cut, will the rate cut affect the exchange rate? The Federal Reserve rate cut has weakened the dollar. Is the rate cut benefit to dollar? Weak dollar, lower currency compare to foreign currency, has no effect on price of local products which produce in the United State. But affect import and export goods. The United State firms find it easier to sell goods in foreign markets. Thus import American goods are less competitive pressure to keep price low. Thus, weak dollar benefit U.S exports by making American goods cheaper in foreign country. Foreign tourist can afford to travel and visit the United State. When dollar is falling, purchasing power of foreigner is increasing. Purchasing power is the amount of value of a good or services compared to the amount that you paid. So when dollar is depreciating, exchange rate becomes smaller. Exchange rate (foreign-exchange rate, forex rate or FX rate) is the number of units of a given currency that can be purchased for one unit of another currency. The United State capital markets become more attractive to foreign investors. Since dollar is falling, it makes foreigner’s investment over United State more affordable. Therefore foreigners take this opportunity to invest in the United State. On the other hand, there are disadvantages on weaken dollar. Weaken dollar is bad for America citizen. Weaken dollar lifted price import. Consumers face higher prices on foreign products or services. They have to pay higher prices on foreign product to higher cost-of-living. It takes more dollars to purchase the same amount of foreign currency to buy goods and services. That means U.S. consumers and U.S. companies that import products have reduced purchasing power. This increase local burden on their living cost. Since the dollar is weakened they cannot enjoy high purchasing power. The United State consumers find travelling abroad more costly too. They have to spend more money to travel in foreign country. When the dollar is falling, it is harder for the United State firms and investors to expand into foreign makers. Thus, weaken dollar does not benefit local consumers, and investors. Now, let us discuss about strong dollar. What will happen when there is stronger dollar? Strong dollar is good? Strong dollar is bad? Who will be affected the most? Who will be benefited by strong dollar? Who will be hurt by strong dollar? Consumer sees lower prices on foreign products or services when dollar has risen. Obviously, strong dollar benefit the United State consumer. It is because foreign products become cheaper even more affordable when the dollar is strengthened. For example, a luxury handbag or a car that once was too expensive to own, may be purchased for a cheaper price thanks to a higher exchange rate. Next, lower prices on foreign products or services help keep inflation low. Price imported is not “expensive” when dollar is stronger than other currencies. United State consumers benefit when dealing...
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