StudentShare solutions
Triangle menu

Factors Influencing Exchange Rate Between the US Dollar and Euro - Essay Example

Free

Extract of sample
Factors Influencing Exchange Rate Between the US Dollar and Euro

The various factors that are considered as influencing factors on dollar-euro exchange rate are the international real interest rate differential, relative prices in the traded and non-traded goods sectors, the real oil price, and the relative fiscal position (Dollar-euro currency exchange). A look into the various analytical works prove that the main reason behind the present fall in dollar value is the large trade deficit, which, in turn, was created by the flow of foreign investment dollars into the US economy. One can say undoubtedly that the world countries will not let the dollar go down as such a fall will adversely affect their own national interests. To illustrate, the US economy offers more return on capital than its European counterparts. As a result, foreign governments, especially the Asian giants like China, Japan and India, have purchased considerable amounts of US dollars as reserve backing for their own currencies. So, a significant fall in the dollar will have an adverse impact on these investor economies. Admittedly, the present day fall in dollar value is primarily as a result of the decline in private foreign investment and is in no way connected with foreign governments. Before its fall, dollar witnessed a sharp rise against the euro, and because of this growth, there arose a belief among private investors that dollar has become too expensive to afford. So, there was a natural shift towards euro as the only other option. As a result, dollar came down the way it went

Related Essays

Consider the extent to which the theory of exchange rates explain the performance of the US$ in recent years
Exchange rate can be fixed or stretchy depending on the monetary policy and the set agreement between the countries taking part in the exchange. However, an exchange rate is said to be fixed when two nations or countries come into consensus to keep a fixed rate based on their monetary policy and regulations governing these countries.
16 pages (4000 words) Essay
Comparative Study of US Dollar and Euro
Introduction The development of economies of countries worldwide is primarily depended on their potentials to promote their currency in regard to global trade transactions. US Dollar is used for measuring the value of petroleum and gold, goods that are of primarily importance for global economy.
8 pages (2000 words) Essay
Factors influencing the rate of enzyme catalysed reactions
Structure: almost all known enzymes are proteins. It is a globular protein that either is dissolved in cytoplasm or in a cellular organelle or is bound to a membrane. Every enzyme is made up of a specific amino acid sequence (primary structure) and a resultant twisted polypeptide chain (secondary structure), which again folds (tertiary structure) to form structural cavities.
16 pages (4000 words) Essay
The Dollar-Pound Exchange Rate
In today's market scenario, there is a tendency to control the forex market by both the current traders of the currency in addition to those who are trading in the futures market. Looking back at the 1931 devaluation of the pound, there is a large scale market pressure based on the fundamentals of the pound sterling against the dollar's market fundamentals (Marsh & Hallwood, Aug 2003).
10 pages (2500 words) Essay
International Financial Management Master Essay
It likewise looks into and discusses the empirical data of such effects. Of the European Union member states outside the euro area, this paper studies the position of the United Kingdom on the adoption of the euro. Part I discusses the need to launch the euro, highlighting its origins from the Marjolin Memorandum to the creation of the Economic and Monetary Union (EMU).
15 pages (3750 words) Essay
Should the UK join the Euro currency
This essay gives detailed information about the European Union and its currency. The creation of the Union has been one of the most significant achievements of the European countries. The main target of the Community created was the formulation of a basis for free trade and transportation between the member states, gradually this target has been alternated.
39 pages (9750 words) Essay
EU communication strategy and the euro implementation
Expansion is the natural and inevitable direction that the EMU has been and continues to pursue; this is not enough, however, as each of the prospective Member States has to elect to join and adopt the euro, in a valid expression of national will. In the case
32 pages (8000 words) Essay
EXCHANGE RATE REPORT
United States of America and European Union are the two largest economies in the world as the US dollar is the most heavily traded currency while euro is the
2 pages (500 words) Essay
International finance -use relevant theory (parity relationship, balance of payment effects, and financial asset market considerations) to explain the movement of selected exchange rate (US Dollar ($) / Chinese Yuan (CN)
The following graph shows us that condition of Yuan between 2004 and 2012. China follows the policy of managed exchange rates. In other words, Chinese Yuan is not allowed to change its exchange rate according to the forces of demand and supply instead Chinese
8 pages (2000 words) Essay
Currency Exchange Rate
The importance of flexibility in the exchange rate for easier correction of imbalances current account has long been at the heart of international debate. Before the financial crisis World, these debates were focused on global imbalances and the role of exchange rate policies several major Asian and oil-exporting countries with external surpluses.
16 pages (3750 words) Essay
up. Now, experts point out that as far as America manages to offer a higher return on investment, it will remain as the primary destination of investment for foreign banks and private investors. As the demand for dollar will grow again, the current deficit will be overcome. However, there are certain governmental initiatives that have already tarnished the image of America as an investor-friendly nation. Some examples are the Patriot Act and the Sarbanes-Oxley Act. As a result of such provisions (as reported by The Economist ) that require extensive paperwork and offer the threat of privacy intrusion, foreign investors have lost interest in the America economy. In the opinion of Gene Epstein, in order for dollar to further collapse, there conditions should exist at the same time. First of all, there should be an existing weakness for dollar that makes investors look for other options. Secondly, there should be another more beneficial option, and thirdly, there is the need for a triggering event. It is pointed out by the scholar that the first option is already in place. This is so because dollar has already fallen by more than 30% in a period of one year. However, the problem is that there is no viable alternative at present for dollar. According to Epstein (2011), this is so because while 61% of the foreign currency reserves are in dollars, the nearest rival euro only has 30% of the reserves. In addition, there is the debt crisis faced by the euro-zone. As a result of all these, one cannot consider euro as a viable alternative to dollar. The third point is the occurrence of a triggering event. In the case of dollar, a possible triggering event is the dumping of treasury notes on the secondary market by foreign governments. If such a measure is taken by countries like China or Japan, there will be panic in the market leading to dollar collapse. However, a look into the business tactics of these nations proves that such a step is unlikely

Summary

Factors Influencing Exchange Rate between the U.S. Dollar and Euro Factors Influencing Exchange Rate between the U.S. Dollar and Euro A look into the performance of dollar shows that it fell by 30% against euro in the year 2010…
Author : barryfriesen
Factors Influencing Exchange Rate Between the US Dollar and Euro essay example
Read Text Preview
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation