Chapter 1. The History of Dollar
Chapter 2. What makes the currency less or more valuable?
Chapter 3. How the Value of Dollar Affects the US Economy
1.Devis, Kenneth C. Don’t know much about history: everything you need to know about American history (bet never learned)/Kenneth C. Devis. Printed in the U.S.A. 1996
2.Between the dollar-sterling gold points. Exchange rates, parity, and market behavior. – Cambridge University Press, 1996. – 363 pages.
3.The Value of a Dollar: Prices and Incomes in the United States: 1860-2009. By Scott Derks. Publisher: Grey House Publishing; 4 edition, 2009. – 690 pages.
An often-overlooked form of investment is the act of investing in money directly this is often done via the currency exchange, and can take a bit of skill and luck to get the hang of. Once you've gotten used to the intricacies of the of the currency exchange, however, you might find that it is one of the more interactive and lucrative forms of investment. Unlike most traditional investments, investments made in the currency exchange are usually short-term and may involve a fast turnaround.
The goal of currency exchange investment is to convert one currency to another during a period of decreased value, and then as the value of that currency rises to convert it either back to your original currency or to another where the same process can be repeated.
One of the main tricks to the currenc
Показать всеy exchange is that the value of money all over the world is constantly in a state of flux. Each world currency is constantly changing in value in relation to all of the others, and by carefully examining the values it is possible to convert back and forth among these currencies to receive the maximum return on your initial investment. Currency exchange investing isn't a fool-proof investment strategy and it's entirely possible to lose money in the process, but for individuals who are looking for a potentially high-yield investment opportunity with a manageable risk, currency investment can be just the thing.
Further some factors that affect the value of the US dollar would be investigated. The US Dollar is subject to numerous influences, from politics to everything you can imagine.
The balance of trade and investment is often cited by analysts as the most important influence on the value of the dollar, with good reason. The balance of trade, related to the current account, represents the difference between what the US exports and imports in terms of goods and services.
The balance of investment, or financial account, represents the difference in exports and imports of capital. If exports exceed imports, in either the current account or financial account, it is called a surplus. When imports exceed exports, on the other hand, it is referred to as a deficit. The following points elaborate on how the current account and financial account affect the USD.
Balance of trade: otherwise known as the current account balance, the trade balance is equal to the difference between imports and exports. The US has been running a trade deficit with the rest of the world for most of recent memory. At $2 billion a day and growing, the trade deficit is making foreign investors increasingly nervous and can affect the dollar significantly.
Falling prices on foreign goods. When the prices of foreign goods decrease, they become more attractive to American consumers, creating a larger trade deficit. Conversely, a rise in the prices of foreign goods, through natural price inflation or because or increased demand, can make American goods look more attractive and help to narrow the trade deficit. This also supports American industry and the economy. All of this serves to help the dollar.
Politics. Government policies often have a great impact on the value of the dollar. Savvy foreign investors know to keep an eye on the state of our political affairs, especially as they impact the strength of our economy and our ability to service the national debt.
Budget deficit and national debt: The US government’s budget can affect the dollar’s value, too. If foreign investors see that the government is spending more money than it currently has, they know that it will be forced to borrow from future generations as well as from the private sector from foreign entities. The US national debt currently stands at $9 trillion and is growing by over $1 billion per day.
Consistent policies. If investors feel that things will largely stay the same, they’ll flock to the dollar because it’s a safe bet. This increases demand and thus, the value of the dollar. Remember, unlike many other investment vehicles, forex is hurt by volatility. This is especially true with regard to financial policy: if investors believe US policy is on the right track, they’ll want to put money in dollar-denominated investments. Conversely, investors can lose faith in an economy that can change with new policies, so they’ll see the dollar as less of a safe bet.
Tax cuts for consumers. Tax cuts for consumers’ fuel spending, which can improve the economy of our country as well as others, like China. This can be good for the dollar as long as it does not deepen the trade deficit or our budget deficit. On the other hand, increases in taxes discourage personal spending, but they help with government spending and debt. This can slow the economy, but at the same time lessen our deficits.
Other countries. Political impact on the dollar does not originate entirely from the US; it can come from all over the world. Trade, conflict, consumption, and other issues can affect the dollar from outside our country. When other countries are in a state of conflict, their respective currencies may be perceived as unstable. In this case, investors may flock to the dollar because it is considered a safer bet. On the other hand, if other countries are consistent in their policy-making as well as politically and economically stable, the dollar may weaken because investors have more confidence in these alternative currencies. They’ll see them as less risky and diversify into non-dollar denominated assets.
A change in foreign reserves. The USD benefits strongly from being the world’s reserve currency. Most central banks hold more dollars than any other currency, but the dollar faces problems when they decide to diversify their currency investments. This could mean that they sell dollars, or simply just stop buying more. This is especially damaging when a large purchaser like China decides to stop adding to its foreign reserves.
Acceptance of oil in dollars. As long as the majority of world oil contracts are settled in USD, other countries have to use the currency. This increases demand for the dollar and therefore, its value. Additionally, most oil exporters hold a significant portion of their oil proceeds in dollars.
Social Security. It’s apparent to Americans and foreigners alike that Social Security is a sinking ship that will only get worse with time. Clearly, this causes investors to lose faith in the US money management system, but when the US works to reform the program, some of this confidence is restored and the dollar can benefit.
Demand for dollars. This factor can be tied to most others, but it can function on its own as well. For example, "if French investors saw an opportunity in the U.S., they might be willing to pay more francs in order to get dollars to invest in the U.S." More francs per dollar means the dollar’s value has risen.
Increase in money supply. With every new dollar printed, each one is valued less than before. The more dollars there are in circulation, the less the currency is valued because the supply has been increased. In practice, this usually causes inflation, which directly eats into the value of the dollar. While this would seem difficult to measure, the Federal Reserve periodically publishes M2 and M3 data reports on the US money supply.
Interest rates. Just like consumers might shop around for the highest-yielding savings account, foreign investors look for the best deal in currencies. Here’s how interest rates affect the dollar’s value. Higher interest rates mean more profit for investors, so a US rate hike will generally strengthen the dollar. In the long-term, however, the law of interest rate parity dictates that currency valuations and interest rates should move in opposite directions. The opposite also holds true. If the Fed lowers interest rates, investors might drop the dollar in the short-term because there’s not enough profit in it.
American consumers. American consumers have the most at stake in the dollar’s value. A fall in the dollar makes consumers’ money worth comparatively less, putting a squeeze on the budgets of the Average Joe. Yet there are several things that consumers do that serve to drive down the buying power the dollar. Here’s how Americans do it.
Consumer savings. Americans aren’t big on savings. In fact, most families have a negative net worth. While this has contributed to a strong economy in the short-term, it means the US is ill equipped to support the economy in the long-term. Additionally, negative domestic savings drives us to import foreign savings, which harms the dollar.
Gas prices. Rising gas prices leave consumers with less money to spend elsewhere, or worse, drive them to borrow money to keep up their standard of living.
Industry and economic indicators. American industry both affects and reacts to the value of the dollar. When the dollar falls, our goods become cheaper and more attractive. However, when we have a strong dollar, our industries have to compete harder against cheaper foreign labor and goods.
Outsourcing creates a trade deficit and causes US employment to suffer, resulting in a fall of the dollar. However, outsourcing also makes US companies more profitable and more attractive targets for foreign investment.
Entrepreneurship creates attractive investment opportunities for foreign investors, supporting a stronger dollar.
Employment growth. Like manufacturing growth, employment growth is a good indicator for the overall health of the economy. Positive employment growth will attract more investors and create a stronger dollar. Unnaturally high unemployment causes the dollar to drop because the government loses tax revenue that could help with the deficit. It also takes consumer purchasing power away, which causes the economy to suffer.
Wage data. Higher or lower wages can either attract or scare off investors, creating a fluctuation in the dollar’s value.
US capital markets. US stocks, bonds, and other investments can be appealing no matter where you are in the world. The performance of US capital markets can either attract or reduce foreign investment, which directly affects the dollar.
Economy. The current performance of the US economy is synonymous with the financial health of our nation. It signals to investors our ability to pay back debts as well as the profit level they may earn. In general, a strong economy will raise confidence, assuring foreign investors that they’ll earn a good profit on a stable investment. Economic growth is even better, attracting investors who hope that their investment will grow, too. A boom in the economy can cause an investment rush that results in a temporary overvalue of the market. This can lead to a dollar loss when it corrects itself in a slow of the economy. Скрыть
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