In January 2007, before the financial crisis, the exchange rate was $1.30 per eu
ID: 1129630 • Letter: I
Question
In January 2007, before the financial crisis, the exchange rate was $1.30 per euro. In July 2008, during the financial crisis, the exchange rate was $1.58 per euro. Was this change in the dollar- euro exchange rate good news or bad news for the U. S firms exporting goods and services to Europe? Was it good news or bad news for European consumers buying goods and services imported from the U. S? How about for U. S consumers looking to buy goods and services made in Europe? Explain your answers In January 2007, before the financial crisis, the exchange rate was $1.30 per euro. In July 2008, during the financial crisis, the exchange rate was $1.58 per euro. Was this change in the dollar- euro exchange rate good news or bad news for the U. S firms exporting goods and services to Europe? Was it good news or bad news for European consumers buying goods and services imported from the U. S? How about for U. S consumers looking to buy goods and services made in Europe? Explain your answersExplanation / Answer
The exchange rate has changed from $1.30 per euro to $1.58 per euro.
This indicates that more dollars can be purchased per euro noe relative to the earlier period.
This implies that dollar has depreciated while euro has appreciated.
Depreciation of dollar against the euro will make the US exports to Europe relatively cheaper and thus demand for them in European market will increase.
So, this change in dollar-euro exchange rate was a good news for the US firms exporting goods and services to Europe.
The depreciation of dollar will make the US goods and services cheaper in European market and due to this European consumers will experience an increase in purchasing power with respect to purchase of US goods and services.
So, this was a good news for the European consumers buying goods and services imported from the US.
On the other hand, depreciation of dollar against the euro will make the European goods and services expensive in United States. This will adversely impact the purchasing power of US consumers consuming European goods and services.
So, it was a bad news for US consumers looking to buy goods and services made in Europe.
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