Euro Echange Rate

1. The Euro appreciated about 15% against the U.S. dollar from January 2008 to November 2009. What impact did this have on consumers and businesses in the U.S. and in the Euro zone area of Europe? Is a falling dollar good or bad for the U.S.? Explain. Whenever a currency appreciates against another there are winners and losers. In this case this scenario benefited the exports of US goods, since they became cheaper for the euro zone businesses and nationals. On the other hand, European goods and services became more expensive for Americans. Therefore, there was a decrease in demand of Euro zone goods in the U.S. and the international market as well as increase in demand of U.S. goods and services. In the end, I believe this benefited US companies since their sales and revenue increased as a result of better prices in the European market. A falling dollar is good for the US businesses which export to Europe, and it is bad for American people and businesses with debt in Euros. Also this sceniro is not good for the US tourists who like to travel to the Euro zone, since the USD depreciation means a decrease in their purchasing power in their home country. Also, this scenario may have resulted in an increased inflation in the US, since this is a factor for the USD depreciation against the Euro.

2. What are the forces that might cause a currency’s value to change relative to other currencies?

Among the economic and political factors that affect the value of a country currency are:

* Currency appreciation/depreciation, * Currency rate manipulation * When a currency is fixed (pegged) to the value of another currency * Interest rates & inflation * Speculation.

All of these forces have critical political and social consequences for a country and its trade partners. As mentioned in the last question, there are always losers and winners whenever these factors are involved in the currency control scheme of a