Currency appreciation Essay

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1. The U.S. dollar appreciated about 15% against the Euro from January 2005 to November 2005. What impact did this have on consumers and businesses in the U.S. and in the Eurozone area of Europe? Is a falling Euro good or bad for the Eurozone countries? Explain. From January 2005 to November 2005, the U.S. dollar appreciated about 15% against the Euro. This means that, when compared to the U.S. dollar, the Euro depreciated 15%. This appreciation of the dollar and depreciation of the Euro has a very large impact on consumers and business in the U.S. and in the Eurozone area of Europe. Starting with the U.S. consumers, an appreciating dollar means that they will be able to afford more European goods than before. As an example, if a French perfume was priced at 100 Euros in January 2005 and this translated into $100, by November 2005 this same perfume, still priced at 100 Euros, would only cost $85 to the U.S. consumer. Hence, the depreciation of the Euro would have impacted U.S. consumers on that they can now afford to buy more European goods and services. U.S. businesses, on the other hand, are negatively affected by the depreciation of the Euro on different fronts. First, on the international front, as the dollar has appreciated with relation to the Euro, U.S.-made goods are now more expensive for European consumer to purchase. U.S. businesses then see their exports to the European markets reduced as they become less competitive. On the domestic front, U.S. business face more competition from good imported from Europe, as these European goods become affordable to the average U.S. consumers, stealing market share from the U.S. manufacturers. An opposed effect can be seen in the Eurozone area of Europe when the Euro depreciates relative to the dollar. For European consumers, a weaker Euro translates into less affordable American-made goods and services.

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