The relationship between the falling United States dollar and the rising exports will be carefully explained in this article. We will give you the complete information on how they are both related.
There are some questions that have been asked online, we will try to give accurate answers to them. See some of the questions below;
What is the relationship between a weak dollar and exports?
Do exports increase when the dollar depreciates?
What happens to the dollar when exports increase?
What happens when the dollar value decreases?
The United States dollar is the most prominent currency in the whole world, it plays a vital role in the global economy. This is why global economy gets affected anytime there is a change in the value of the dollar at the foreign exchange market.
However, we are not going to dwell much on the role of the American dollar in the global economy on this article, we are going to talk about the relationship between the falling dollar and rising exports in the United States.
First, let’s explain what we mean by ‘falling dollar’, ‘rising dollar’ and ‘rising exports’.
What Does A Falling Dollar Mean?
When the United States dollar is said to be falling, it means that its value or rate against the currencies of other countries has depreciated. In cases that the value of the United States dollar decreases in its value against other currencies, more dollars will be needed to buy other currencies, we can call this a ‘weak dollar’.
For example, if one United States dollar changed for 1.30 per British pound, that means $100 will be needed to purchase 130 British pounds. If the value or rate of the U.S. dollar reduces to 1.20 per pound, then $100 will not be enough to buy 130 British Pounds.
What Does A Rising Dollar Mean?
A rising dollar indicates that the value of the United States dollar when converted to other countries’ currency has increased, in such cases we can also term it as a ‘strong dollar’. This means that the volume of dollars needed to buy other currencies has reduced.
For instance, if one United States dollar changed for 1.50 per Canadian dollar, that means $100 will be needed to purchase 150 Canadian dollars. If the value or rate of the U.S. dollar increases to 1.65 per Canadian dollar, then $100 will not be enough to buy 150 Canadian dollars.
What Does Rising Exports Mean?
The word ‘rising export’ is used to explain an increase in the demand for exportation of goods and services in a country. Like in the United States, if the number of exported goods increase due to several factors, we can say that there is a rising export in America. When the U.S. exports’ prices becomes less competitive, it will lead to an increase in demand as well as the value of the exports. This can be caused by a fall in the value of the U.S. dollar as well as other economic factors.
Relationship Between the Falling Dollar and Rising Exports
The relationship between the falling dollar and rising exports is inverse, this is because when the dollar falls in its value, exportation becomes more profitable and increases. Exporters in the United States make more profit and sales when the dollar rate decreases. In a developing country like Nigeria, the exchange rate of dollar to naira as at today is about N400/$, and the rate benefits the exports and is disadvantageous to the importers.
When the value of the United States dollar gets weak, the price competiveness of United States exports will increase, there will be an increase in demand once exports become cheaper. An increase in the value of exports will occur when there is price elasticity in demand.
Of course when the value of the dollar falls, it makes imported goods more expensive thereby reducing its demand but it increases exports.
What is the relationship between a weak dollar and exports?
A weaker dollar automatically translates to an increase in United States exports. This is because when a dollar is weak, it means that other currencies can buy more dollars and this makes United States exports less expensive. A weak dollar and exports share an inverse relationship in the sense that exports increase when the value of dollar decreases, but when the rate of the U.S. dollar increases against other currencies, export becomes less competitive and reduces.
Do exports increase when the dollar depreciates?
United States exports price becomes competitive when the value of the United States dollar against other currencies reduces. Based on the explanations we have made above, the answer to he question is ‘Yes’, export increases when the dollar depreciates.
What happens to the dollar when exports increase?
The increase of United States exports is more often caused or triggered by a decrease in the value of the United States dollars. However, this may not be the only reason that the U.S. export will increase, the demand for a particular product may increase as a result of necessity even though it is expensive, in such a case the value of the United States dollar will increase. When export increases through other factors, the currency of the exporting country will increase.
What happens when the dollar value decreases?
A weak dollar reduces the purchasing power of the currency internationally and this will affect the prices of imports. When the dollar value decreases, the cost f importing commodities like oil increases, this high cost of imported commodities will be transferred to the consumers who will have to pay more to consume them.
