• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economics Commentary - Dollar Hits a New Low, Oil Hits a New High

Extracts from this document...


Economics Commentary - Dollar Hits a New Low, Oil Hits a New High Recently, the global economy has been struck a lot, mainly due to the subprime debt crisis. So far as the foreign exchange market is concerned, many factors have made contributions to the depreciation1 of the U.S. Dollar. The main reason for the sharp depreciation of USD is the unfavorable economy with a sick-into-death credit market that makes domestic and foreign investors disappointed. As it is referred to the article, many economic data released by the US government is quite dark leading people to lose confidence, and have worse expectations towards the US financial market. As a result, people, especially the foreigners, will consider making their investment plan into abeyance and withdrawing the current portfolios2 in the US. Also, those investors will seek to make new investments in the other healthy market such as East Asia and Europe. This will lead to the decrease in the demand of USD and the increase in the supply of USD, since they do not need any more dollars and want to sell the USD in order to purchase other currencies such as Euro. This series of actions contribute to decreasing the exchange rate of USD against other currencies. In this diagram, the demand curve shifts to the left and the supply curve shifts to the right, giving a sharp decrease in the price of USD from p1 to p2. ...read more.


instead of a bulk of money during the special period like this subprime crisis. This will lead a shift in the demand of the dollar-priced commodities such as the crude oil to the right, giving an increase in the price of the commodities. This news article also refers to the China's exchange rate system. Although Chinese government has changed their exchange rate system from Fixed Exchange Rate to Managed Exchange Rate getting appreciation due to the outside pressure, the Europeans don't satisfied with this replacement and still think Yuan is undervalued that affords advantages to China's export. This is because the price of the goods in the country with an undervalued currency will be more attractive to the other countries. Extract: FRANKFURT, Oct. 18 - The dollar sank to a new low against the euro Thursday as fresh evidence of losses in the mortgage industry stoked fears of a sharper-than-expected economic slowdown in the United States and crude oil rose to another record. In late afternoon trading in New York, the euro traded at $1.4294, up from $1.4186 on Wednesday. Crude oil for November delivery rose $2.07, or 2.4 percent, to $89.47 a barrel. In after-hours electronic trading, the price rose slightly above $90. The declining dollar has made commodities, which are priced in dollars, more attractive as investments, while tensions between Turks and Kurds over border violence in northern Iraq have helped keep oil prices rising. ...read more.


BusinessEurope called on the Group of 7 finance ministers and central bankers to find solutions "within the sphere of multilateral consultations, and notably with clear commitments in the G-7." The letter was also signed by the heads of business lobbies in Germany, France and Italy. "Persistent disequilibria in the world economy continue to harbor the danger of further appreciation of European currencies in the face of large external deficits in the U.S. and inflexible currency regimes in other parts of the world," they wrote. The comment alluded to the enormous United States current account deficit, whose sheer size has left currency markets vulnerable to jitters that foreigners would tire of lending the cash required to cover the shortfall, a reflection of how much more Americans spend than they save. It also referred to China's foreign exchange management, which has kept the yuan low against the dollar. 1 A decrease in the value of one currency in term of another one. 2 (a) group(s) of investments. 3 Interest (or the interest rate) is the price of money (a currency). 4 Arbitrage in the Forex market is a type of action that traders borrow and sell currencies whose interest rates are quite low, and then buy the other currencies with higher interest rate so that they can get returns from the difference between the interest rate. 5 The difference between a nation's total exports of goods, services and transfers, and its total imports of them. ?? ?? ?? ?? Economics HL Portfolio A Jingming Chen 1 / 8 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Extended Essay Economics

    This means that the supplier has to wait for payment and this causes a great deal of problems for the firm. The supplier may stop supplying their goods, and, while the firm waits for the supplier to get paid, they cannot import any more goods.

  2. The Economics of Housing. Factors affecting prices and demand.

    In UK the Bank of England set a base rate for the whole economy which affects the commercial rates. But sometime base rate decrease but the commercial bank didn't follow it on their customers. The starting of 2008, the bank of England cut the base rate from 5.5% to 5.0% but still the cost of mortgage is rising.

  1. Economics HL - IA

    Without trade, the total surplus/welfare of Denmark is (A+B+C). Since producers have an incentive to sell their products at a higher price they will adjust prices to the world price, and start exporting. They will now start to produce more than what is needed to balance out with the demand, and a surplus is created.

  2. Advantages and Disadvantages of High and Low Exchange Rates & of a Fixed and ...

    A fixed exchange rate is an exchange rate regime where the value of a currency is fixed to the value of another currency, to the average value of a selection of currencies, or to the value of some other commodity, such as gold.

  1. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    (WON) The pursuit of self-interest by every individual person is argued by the invisible hand theory to result in aggregate conditions that are favorable to the aggregate population. The positive impacts that the self-interested decision has on society are indirect. These self-interested decisions directly affect this person?s life quality but indirectly change its impact on society as a whole.

  2. Economics Commentary - the article is about the rising tariffs in the trade ...

    ________________ ________________ ________________ ________________ 1. The foreign producers are worse off, the export revenues of the foreign producers fall by an amount equal to the fall in the quantity of exported from Q4-Q1 to Q3-Q2, which is leaded by the higher price.

  1. What new possibilities do developments in technology provide for families?

    With this process our computer and home gadgets also improve. In the 1920?s in America the first time a Vacuum cleaner get used to clean the household and today you already can buy little robots which do the cleaning for you.


    price and quantity bought of other complement?3 Computer hardware and software are therefore complementary goods. ?Fortress and Broadway have computers based on XP and Vista, whereas Lenovo group, Hewlett-Packard and Sony have Windows 7 machine? explains how system and PCS are marketed as complimentary goods.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work