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Finance & Accounting
Pages 3 (753 words)
THE EFFECTS OF A WEAK CURRENCY Introduction Many analysts believe that the European economy is likely to face more turmoil before it finally gets better. The impact of countries leaving the euro on other euro zone economies such as Germany, Ireland, Italy, Portugal and Spain could severely affect the financial stability of the global economy…
The main reason for the Germany’s bad economic fundamentals and euro losing strength was lack of unity among members of Eurozone and failure of financial authorities to understand the gravity of problem arising from sovereign debt at an early stage. Effects of weak currency on consumers and businesses The economic and financial problems in the Euro zone can be attributed to the weakening of euro against dollar. The weakening of euro can be considered as double edged sword for both businesses and the consumers. (Source: Moody’s Analytics, 2012) For instance, for businesses exporting using euro dominated currency will experience a surge in income from the weak currency. Similarly, businesses that rely on imports will experience rise in their cost of production. These high cost will be passed on to the European consumers which can depress demand. This means that European economy would face slowdown in consumption and growth. While European exporters are expected to benefit from weak euro, the USA exporters will face see slow growth due to weak demand and report lower earnings (Frieden, 1998, pp.25-31). ...
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