Hedging against a Weak Dollar - Essay Example

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Hedging against a Weak Dollar

From the research it is clear that for the five-year period ranging from 2007 to the end of 2011, the US dollar has experienced numerous fluctuations. The highest value of the Euro in comparison to the dollar was 1.5991, during the 2008 global economic crisis, when American multinationals were going into bankruptcy or requesting bailouts by the government. The lowest value was 1.1923, in the year 2010, two years after recovery from the meltdown. Over the course of last year, the dollar reached its highest and lowest points for the period at the start and at the end of the year. At these times, the dollar was stronger in relation to the Euro. In the middle of the year, the dollar was weaker in comparison to the Euro for the year, and almost reached a rate of 1.5 against the Euro in comparison to the beginning and the end of the year when it was below 1.3 against the Euro. Another short-run determinant to exchange rates between the euro and the dollar is the growing capital mobility across the globe. All forms of financial markets now share access to each other on a global scene, and investors put their money in the markets that offer them the best returns, without restrictions to invest locally. Whenever demand for US assets is bigger in relation to relative demand across the globe, the demand for US dollars will likewise increase. The converse is true, when the demand for US assets falls, investors will have put their money in competing markets rather than the US market, and likewise the dollar will depreciate in comparison, as the investors make the most of the more profitable markets around the globe. ...Show more

Summary

This study aims to discuss financial hedging against a weak dollar. As a way of preventing losses from currency exchange operations, companies and parties intending to exchange currencies make use of hedging techniques to control and minimize the losses. …
Author : gregorioolson
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