This essay considers several potential financial and economic effects associated with the policy of a weak dollar that is being pursued by the Bush Administration. The reference sources for the consideration of these effects are two articles from the Financial Times รน Chung (2003) and Postelnicu (2003).
For many American multinationals and large American exporters, the weak dollar should lead to increased earnings because the demand for American products will increase as euro-holders and yen-holders find that they can buy more value in American products for the same outlay. Some American companies, however, likely will not share in these benefits. Retailers (who increasingly stock foreign products largely because many products are no longer produced in the United States) will have to pay more to import the goods, while American consumers are finding that the dollar will not buy as much as it once did. Retainers, therefore, likely will see drops in volume, marginal profits, and total profits. Sellers of financial securities also may suffer, if the falling value of the dollar causes foreign investment in the United States to be less attractive.
Foreign multinational companies also will feel the pinch of the falling value of the dollar. On the one hand, companies with major operations in the United States, such as Daimler-Chrysler, will suffer major translation losses in the repatriation of profits. On the other hand, companies with high volume sales in the United States, such as Volkswagen, will experience a fall in the demand for their products as those products become more expensive for American buyers.
The falling value of the dollar also holds implications for the American economy, American securities markets, and the United States government. Foreign investment provides massive levels of funds to the financial markets. Corporations in the United States rely on the availability of such funds for capital
...