EFFECTS OF A WEAKENING DOLLAR ON US & FOREIGN COMPANIES
a. The falling value of the dollar in relation to the euro and the yen can have positive earnings effects for United States multinationals because the relative cost of goods produced in the United States to foreign buyers will become lower. People in euro countries, for example, will be able to buy an American product for fewer euros than was the case before the dollar started to fall in value. Large American export companies stand to benefit because the lower relative cost of American goods will lead to an increased demand for American goods in Europe and Japan (Postelnicu, 2003).
b. Postelnicu (2003) reports the assessments of thinking in the financial community that two sectors of the United States economy might be especially disadvantaged by the declining value of the dollar in relation to the euro and the yen. One of the two groups is retail trade. With narrow operating margins already and with high levels of imported goods in their standard stock lists, the increased costs of products imported from Europe and Japan will narrow retail margins even further. The second of the two groups is the financial sector, where the prediction is that the demand for American securities will fall as the value of the dollar falls.
c. Chung (2003) indicates that the falling value of the dollar in relation to the euro and the yen will have negative effects for many multinationals based in Europe and Japan. Volkswagen, as an example, is reported to have absorbed a Ç400 million expense in the first-quarter of 2003 because of currency translation costs related to the falling value of the dollar.
d. Overseas investments in the United States have been the lifeblood of the American economy and the American government for three decades at least. It is overseas investment money that plays a major role in appreciation in the American stock market. It is overseas investment money th...