International Business Finance

This article discusses the value of dollar determination, exchange rates, treasury notes, foreign currency reserves, and the historical movement of the currency in international business finance. It also covers the effects of the value of the dollar by the current account deficit, how Federal monetary policy affects the value of the dollar, the long-term value of the dollar, and investment perspectives in the future of the dollar. The article concludes with a discussion on current account deficits and their implications for investors and policymakers.

Running head: INTERNATIONAL BUSINESS FINANCE
International business finance
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Table of Contents

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Introduction......................................................................................................................................2
Value of dollar determination..........................................................................................................4
Exchange rates.................................................................................................................................5
Tresury notes...................................................................................................................................5
Foreign Currency Reserves..............................................................................................................5
Analysis of the historical movement of the currency......................................................................5
Affects of the value of dollar by the current account deficit...........................................................6
Federal monetary policy affect the value of dollar..........................................................................6
Long term value of the dollar..........................................................................................................7
Investment perspective in the future of the dollar...........................................................................7
Reference.........................................................................................................................................8

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Introduction
A measurement of the current account deficite refers a country impored more goods and
services than its exported.A nation projected the current account deficite while it relies on
foreigners for the capital to invest and spend, carrying a current account deficite indicates a
positive sign that the country is growing on the other hand it also depicts a negative sign tnhat
the country is in credit risk. In 2018 the US was faced the current account deficite in the center
stage. Donald trump, at that time promised to cut the longstanding trade deficite and
strengthening the domestic manufacturing. After traking the presidential chair, he took a step of
NAFTA and TPP. Other than this, he was focuased on the improvement of the domestic market.
The current account deficit (Lane 2015) had reduced from an aggregate of 5% at the early
2000s to 2.5% of the GDP in 2018. There was a sign of worry yet. Tax cut by the Trump and
increasing amount of spending further projected to drive the budget deficit back yo 5% of the
GDP (Coyle 2015). As the government borrowing’s increases, there was afear that the
inadequate domestic savings would derive the current account deficit back to 5% GDP. Alan
Greenspan, the chaiman of the Federal Reserve (Bernanke 2017), fixated on financing the deficit,
he marked that in 2004 and 2005 the ratio of the global debt and equity claims to trade as well as
to GDP. He claimed that the stable upsurges of the financial intermediation, which facilitate the
continuous extend of the current account deficit and surpluses about the world.
Particularly, world savings streamed into the United States with its favourable investment
climate. Despite the downgraded risk in the current account deficit, the assistant treasury said
that it is a gift to the world from us. Many economist said that, provided the expanding deficit.
Therefore the ignition of the economy was to encourage the export led causes economic
expansion (Tang, Lai and Ozturk 2015), particulary in Asia. Then a major problem was seen that

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the Asian central bank would continue the dollar purchase. Many observer would believe that the
Asian country would select to preserve their deeply managed exchange rates (Engel, Mark and
West 2015) against the dollar.
Some economists, noted that the valuation influences to the further anticipated
depreciation of the dollar would analyst the NIIP (Della Corte, Federico and Tosti 2018) and
therefore diminish payments of income abroad further. Moreever some of the economists have
calculated, a further 10% depreciation into the dollar would draw a transfer of 5% of US GDP
from the rest of the world to the United states. It was observed that a large undesirable estimate
effect could result a sudden stop in capital flows that would effecr further in the trade balance to
transfer into surplus.
In the year 2018, the economy had recoverded, financial institutions had strengthened and
the inflation had reached 2.1%. It was just about the Federal’s target. Implementing the policies
by the Federal’s to keep the that flood of dollars from driving inflation much higher. The rates
raised several times in 2017 and early 2018 to a range of 1.75% to 2.0% as a result the dollar
make strengthened. During the trade war there was a increased of business, for example, there
was a rise of price of steel by the US tariffs and foreign retaliation (Cavallo et al 2019). After
launcing the trade war by Trump, he tweewted this policy are easy to win. Protecting the
domestic manufacturing market he levied 30% tariffs on solar cells and 20% on the wasing
machines. Complicating the NAFTA (Hakobyan and McLaren 2016) negotiations, 25% tariffs
levied on steel, 10% on aluminium, then the prime minister of Canada said this could be a
national security threat, blaing the trade war it rises cost (Irwin 2017).

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After the commenment of the “world war-I”, the foreign assets fall into worldwide
dramatically. The standard of gold demolish apart and monetary policy (English, Lopez-Salido
and Tetlow 2015) was directed towards the national goals such as trading war effeorts through
issuing bonds and printing the money. In 1925 was a new glod standard finally initiated, the Uk
and US finally exchange thw dollar or strerling for gold on demand at fixed parties.
Some economists was blamed the system of unified monetary, which was obscure by the
gold standard. Expanding the economic problems arise from the United states to Europe,
resulting a great depression of the 1930s. It was claimed that the government was forced to
protect that reserves of gold by keeping the interest rate high and credit fitted for too long, which
had a upsetting impact on the credit, expenditure and prices (OLIVEIRA and Wolf 2017)
Extracting the above ideas, the paper can addressed some below mentioned answer as
follows:
Value of dollar determination
Measuring the US dollar is based on three ways, exchange rates, Treasury notes and
foreign exchange reserves. The most essential method is through the exchange rates.
Exchange rates
The exchange rates of dollar associates its value to the currencies with other countries. It
refers to determine how much a particular currency can transact with a dollar. Is is consider that
the most prevalent exchange rate dimension is the US dollar index. These rates keeps changing
everyday because the currencies are traded on the foreign exchange market. In other words, the
forex value depends on the many factors, these includes interest rates of central bank, debt level

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of the countries and the economy strength. The Federal reserve has various monetary mechanism
that affects the potentiality of the dollar. These process are helps to regulate the exchange rate by
the government. Most of the countries are use the the forex trading to value their currencies
(Engel, Mark and West 2015).
Tresury notes
The dollars price is also synchronized as per the demand for treasury notes. It completely
depends on the demand in the market. A high yield derive low dollar demand. The yield drives
high point to trigger renewed the demand of dollar.
Foreign Currency Reserves
Government holds their currency in their currency reserve. By doing the export more than
the import, they stockpiling the dollar. Many country hold on the interest on the dollars because
it keeps their currency valu lower.
Analysis of the historical movement of the currency
“International currency exchange rates” illustrates, how much one unit of a currency can
be swapped for another currency. Currency conversation rate can be floating, in that case they
continuously change on the basis of multitude features are they can be secure to another
currency. In which case they still drift, but they transfer in a tandem with the currency to which
they are immovable. Floating rates are evaluated by the market emphasis of supply and demand.
How much demand related to the supply of a currency. That will evaluate the price of currency
in relation to another currency. Percentage change in between two currency determnine the price
movement of the currency.

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Affects of the value of dollar by the current account deficit
Current account deficit, which derives the import exceeds the export, it continuous to
deteriorate leading to more outflows of US dollars. The flow of dollars out of the country leads
to the faintness for the currency.
The decision of the Federal monetary policy, do not just affect the US dollars’s
conversation rate. As assets which are traded on the global markets are being valued or valued in
dollars, other currency conversation rates can also be affected, explicitly oil and commodity
exporters. For instance the Federal QE programme reports a significant reduction in the
exchange rate of the Australian dollar.
Federal monetary policy affect the value of dollar
The Federal monetary policy is primarily envisioned to manage the US dollar excahnage
rate. The purpose is to keep inflation and unemployement in the US low and stable. However
because the US dollar is major leading currency and freely drifts against the currency. This
monetary policy has an international affects and therefore the international business find it
cooperative depending on the indications given by Fed while planning their FX management
strategy (D'arista 2016).
Long term value of the dollar
The dollar value has a strong potentiality as of the current year but in the long run the
dollar might falls its value as it is expected that there is a overvalued. The most persuasive
factors for the dollar is hike of the interest rate. In the context of the long term, it is assuming that
dollar will closer to its fair value, if it is not slightly overvalued or downward trend. The

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expectation is very cautious about a positive a near term dollar out look. The analysis reflects the
longterm bearish dynamics , in combination with the changes to the central bank’s balance sheets
and US political risk have pushed the currency too lower level. The dollar also enjoys a
provision from the US interest rate divergence over the rest of the world.
Investment perspective in the future of the dollar
To invest in the future in dollar, there are some essential factors to mark on that. As the
dollar shows strong and the research says its overpriced, then there is a possibility to fall the
dollar price in a future, so take a short position in a the future market. Selling of dollar in the
view of speculative and unhedging into the europeun equity market and hedged from the
Europeun and Japanees investors into the US fixed income instruments, as the facts reflects that
the interest rate differentials have widened dramatically in the favour of US currency. As an
investor, hedge the foreign currency exposure on a non-domestic assets, it refers short position
on the foreign currency to buy its domestic currency.
Conclusion
In all around the world, the investors and the policymakers throughout the world were
challenged with the risk of painful economic consequences, which arise from the US current
account deficit. In 2007, the US current account defict was $731 billion which is equivalent to
5.3% of the GDP. At the matter of intensity the implications were much debated. It was argued
that they will resolve the larger deficit smoothly if the persisit motre years. The analysis suggests
that the larger deficit raised the risk and delebaretly fall of the dollar and that has necessary
macroeconomic adjustment which could be painful for the United states and for rest of the world
as well. Current account deficits could laed some chaotic markets where currency adjustments

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will happen and suggests to the investors to invest into the foreighn companies to protect against
the risk.

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Reference
Lane, P.R., 2015. A financial perspective on the UK current account deficit. National Institute
Economic Review, 234(1), pp.F67-F72.
Coyle, D., 2015. GDP: a brief but affectionate history-revised and expanded edition. Princeton
University Press.
Bernanke, B.S., 2017. Federal reserve policy in an international context. IMF Economic
Review, 65(1), pp.1-32.
Tang, C.F., Lai, Y.W. and Ozturk, I., 2015. How stable is the export-led growth hypothesis?
Evidence from Asia's Four Little Dragons. Economic Modelling, 44, pp.229-235.
Engel, C., Mark, N.C. and West, K.D., 2015. Factor model forecasts of exchange
rates. Econometric Reviews, 34(1-2), pp.32-55.
Della Corte, V., Federico, S. and Tosti, E., 2018. Unwinding external stock imbalances? The
case of Italy’s net international investment position. The Case of Italy’s Net International
Investment Position (July 20, 2018). Bank of Italy Occasional Paper, (446).
Cavallo, A., Gopinath, G., Neiman, B. and Tang, J., 2019. Tariff passthrough at the border and
at the store: evidence from US trade policy (No. w26396). National Bureau of Economic
Research.
Hakobyan, S. and McLaren, J., 2016. Looking for local labor market effects of NAFTA. Review
of Economics and Statistics, 98(4), pp.728-741.
Irwin, D.A., 2017. The false promise of protectionism: Why Trump's trade policy could
backfire. Foreign Aff., 96, p.45.

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English, W.B., Lopez-Salido, J.D. and Tetlow, R.J., 2015. The Federal Reserve’s framework for
monetary policy: Recent changes and new questions. IMF Economic Review, 63(1), pp.22-70.
OLIVEIRA, G.C.D. and Wolf, P.J.W., 2017. The euro and the recent European crisis vis-à-vis
the gold standard and the great depression: institutionalities, specificities and
interfaces. Brazilian Journal of Political Economy, 37(1), pp.147-166.
Engel, C., Mark, N.C. and West, K.D., 2015. Factor model forecasts of exchange
rates. Econometric Reviews, 34(1-2), pp.32-55.
D'arista, J.W., 2016. The Evolution of US Finance: v. 1: Federal Reserve Monetary Policy, 1915-
35. Routledge.