Decline in US Dollar: Implications for International Trade and Commerce

This article discusses the implications of the decline in the US dollar for international trade and commerce. It explores the effects on exchange rates, MNCs, and the US economy.

Running head: SELF REFLECTION
Self Reflection
Name of the Student
Name of the University
Author Note

1SELF REFLECTION
The exchange rate between US dollar and Chinese RMB stands at one US dollar
being equivalent to 6.91 RMB. This present exchange rate does not speak too highly of US
economic progress. It implies that US goods in China are far cheaper than they were before
and Chinese goods cost more in the USA. The current exchange rate is also not too different
from the exchange rate that was seen to be in place in the year of 2008 when one US dollar
was equivalent to 6.87 RMB. The decline in the value of the dollar is not good for US
economy at all as it means that the value of the US economic program is reducing greatly in
the eyes of the rest of the world, as far as international trade and commerce is concerned
(based on the case study provided).
The MNC should hold currencies with countries that have very strong and centralized
banking systems The MNC should immediately diversify when it comes to the production of
its goods and services The dollar position should be potentially reduced at a time when the
dollar is seen to swing in upward motion. Given the fact that the dollar is one of the strongest
of international currencies it would not make sense for the MNC to sell off its US dollars.
Forward Contracts should be used for mitigating this currency risk. The risk should be
hedged with the help of specialized and exchange traded funds Politicians speak positively
about the US dollar because a low dollar can present a number of valuable opportunities.
Firstly, investors who invest their money in US MNC stocks will be in a position to earn a
significant amount of money through their overseas ventures (based on the case study
provided). Bottom lines are likely to get significantly boosted as companies are now going to
be able to send their products across the globe at far lower rates. MNC’s tend to benefit a
great deal when the value of the dollar falls because products and services of such MNC’s
when consumed in countries where the currencies are steering ahead of the dollar will lead to
huge profits for such MNC’s. US MNC’s will feel compelled to manufacture goods and
services in the home country that is in the USA as the cost of foreign goods will be much

2SELF REFLECTION
higher due to the decreasing value of the dollar and this in turn will be great for the US
economy. Over the long term, dollar weakness is expected as a global monetary policy. Euro
is expected to appreciate further in value. The value of RMB is likely to remain static in its
value with regard to the US dollar (based on the case study provided).
What is evident from the statistics and the points that have been mentioned above is
that the decline in the US dollar is a situation that is good for international trade and
commerce. While for the United States of America, this implies that the country cannot deal
in the exchange of goods and services at a profitable rate, for the rest of the world though, the
prospect of incurring a profit when holding shares in a US based MNC are very high.
Investors who hold shares in the US based MNC’s will be able to do very well for
themselves, should the value of the dollar of the US fall to an all time low (based on the case
study provided).
The value of the dollar is something that is likely to remain low for the long term
now. There is no possibility of the dollar increasing in value through the value of the Euro
continues to appreciate. Even the Chinese RMB is of almost the same value as a US dollar,
making Chinese goods in the USA quite expensive to buy, but US goods in China rather easy
to spend on. The decline in the dollar is rightly spoken about in a positive light by politicians
because multinational firms can invest and get very good returns when the dollar rate is low.
More and more companies will be interested in investing and doing business in America if
the value of the dollar is low. However it needs to be remembered that this low value of the
US dollar is not great for the economic program of America. If the US dollar is steadily
declining in its value it implies that the economic value of the nation is also decreasing in a
slow and steady fashion in the eyes of the rest of the world, which is not something that
America ought to want for itself at all, I believe.

3SELF REFLECTION
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