EXCHANGE RATE REPORT - Essay Example

Exchange Rate Report According to Hyman, the exchange rate is the rate at which one currency can be exchanged for another. Or it can also be d as the price of one countrys currency expressed in another currency. It is very important for countries as it allows for the conversion of one countrys currency into that of another, and eases international trade for purchases of goods and services, and funds between them.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 world’s second most popular currency.

America’s economy is largely service based, and its currency generally strengthens when the economic activity in the country is strong. If economic activity slows, dollar weakens. Compare to USA, the economy of the European Union which represents euro focuses more on manufacturing sector which represents a greater percentage of GDP. Euro strengthens when the economic activity in the European Union is strong, and weakens when the economic activity slows. It also weakens if disagreements arise regarding monetary policies among the members of the European Union (“CURRENCY: USDEUR’’).

From many decades US dollar is serving as a major international reserve currency and is one of the major reasons of the status of the United States as a global super power. But, in recent years it faced increasing pressure from European currency, euro. In its early days of introduction, the euro remained weaker than the dollar. Later it shows a stable upward trend and getting stronger against dollar. But, from the last one month US dollar is getting stronger against euro. On December 24th exchange rate of 1 US dollar was 0.

763417 euro. On 23rd exchange rate of 1 dollar was 0.765462, and on November 25th, it was 0.750694 euro. On November one, exchange rate of 1 US dollar was 0.718081 euro. If we take the trend of exchange rate for the last one month, we can notice that US dollar is getting stronger against euro on the average basis (“CURRENCY: USDEUR’’). Many factors played their role in the strengthening of US dollar against euro since last one month. From the past few months U.S economy is growing faster as the investors considered USA as a safe haven for their investment.

Demand increased for dollar exports contribute to strengthen dollar. On December 16th, the USA central bank cut interest rates to an all time low, a move aimed at reassuring financial markets and stimulating banks to lend money. American dollar is the currency of choice in global crude oil trade, and oil producing countries receive their oil revenues in US dollars. Since last one month price of crude oil witness an increasing trend. Dollar continues to strengthen against euro as investors remain fearful that more euro zone nations acknowledge the difficulties they are having working within their fiscal budgets.

Few days back Portugal and Spain expressed their difficulties and sought help from the European Union and International Monetary Fund (“CURRENCY: USDEUR’’). CONCLUSIONOn December 22nd euro weakened to a two weeks low against the dollar, on the reports of speculation as some European nations such as Greece, Portugal, Ireland would struggle to raise funds amid a slew of credit rating and outlook changes. Global rating agency, Fitch has put the Greece’s credit rating on negative pitch, and that of Spain and Portugal’s are at risk amid the economy’s sluggish growth.

Ireland also faced the same problem. Greece was placed in the lowest investment grade level. In the year 2010, the euro has declined nearly ten percent which is the biggest loss among the ten developed nations.Works citedGoogle finance. “United States Dollar: CURRENCY: USDEUR Quotes & news – Google Finance’’. Web. 22 December. 2010.David N. Hyman. “Public Finance: A Contemporary Application of Theory to Policy with Economic Applications’’. New Jersey: learn Inc. 2002. Print.