Impact of declining US Dollar Essay
Introduction: The dollar is a sort of currency, which is most used and dominated in the international markets. Although there are many countries using dollar as their primary currencies but the scope of this paper mainly focuses on the US dollar in particular. Before 90’s dollar saw a face of continues increase, which has several viewpoints and goods and bad, but since after the 90’s era the country has seen a drastic and constant decline in the Dollar value.
This decline also left some goods and bad impression on the economy. Economy mainly runs by setup of capitalists and investors. The more they are prosperous the greater benefits will be experienced by the economy, the less prosperous a capitalist or investor is there is not much which he can give to the economy. However one thing not to forget here is that the fluctuation in the currency value has a very prominent role making the economy prosperous.The basic aim of this research is to explore the facts about ‘The impact of declining (US) Dollar on the capital expenditures of the US companies’.
Capital here does not only means machines as we take it in general but in economical terms when someone opens a company capital means the machines, the infrastructure as well as the fund or more appropriately finance need to run that company. In this paper we will consider capital as a general term for a couple of items.We will start it by studying the difference between the impacts of the declining as well as the increasing of Dollar in the money market. If the value of Dollar in the international market is increased there can be following impacts on the economy as they were in real observed by the US economy till 90’s: • It declines the employment level in the US. • It cuts the capital expenditures for industries and manufacturing plants • It declined the profit made by the capital-intensive companies. (Blecker, n.
p) The above points can be discussed in detail to expand the topic further.It Declines The Employment Level: When the Dollar value is raised in the international market it means that more goods can be imported from the world to US by paying fewer dollars. This means that the domestic production will be declined since the imported goods will be in bulk to be purchased in the markets and the consumer will prefer these goods instead of purchasing the local produced goods with expensive dollars.This will decline the domestic production and the import will be encouraged hence cutting down the production in US based companies and naturally there will be no need to employ a greater number of employees for less work.
(Blecker, n. p) Cutting The Capital Expenditures: Secondly when domestically produced goods will be sell into the international markets or exported there will be more dollars in return as in case the money value of dollar is higher in the markets. Therefore it wills benefit the cost on expenditure by the US companies and they will get more dollars for less export.(Blecker, n. p) Declining Profit: Since the products in US will be expensive to purchase for the international buyers as well as the local people the profit graph will eventually go down and the profit maintained is much likely to set back by the capital intensive firms although the capital expenditures must be covering easily in this case.
(Blecker, n. p) On contrary what if a dollar value declines? The impacts of declining dollar value on the economy can be: • It encourages exports • Increases the employment level • Imports goods will be less in demand and domestic purchasing will rise.• Economy of US will prosper specially the manufacturing sector. • Profits made by capital-intensive companies will be maximized.
(Blecker, n. p) Encouraging Exports: When ever there is fall observed in the currency it is assumed that now onwards the demand for the products of that country will be increased domestically as well as internationally. When dollar started declining the most beneficial point was that the foreign demand was increased. Since more US goods can be purchased paying less currency in exchange of dollars.Also the local consumer prefers domestically produced goods as they are huge in supply and can be easily purchased with cheaper dollars. Increase Employment: As the dollar declines and the demand increase for US manufactured goods the supply side has to be maintained by the companies therefore it is equally important to have sufficient employees in order to produce large orders and to meet the targets and challenges.
Hiring new people can resolve the problem and as a result employment level will be increased and more jobs will be provided by it. Rise In Domestic Purchase:The decline in dollar makes the purchase of US based goods easier and cheaper. Imported goods will be neglected in this case and local buyer will prefer domestically produced goods. Manufacturing Sector Will Prosper: Although the decline in dollar encourages exports, domestic demands, and manufacturing but it is fact that the producer is not able to get higher values in terms of dollars by trading internationally.
Hence in some cases there is a possibility that expenditures on capital may not be cover up very easily but still the profit graph in this case will be higher.After a brief review of the impacts of declining and increasing dollars on the US economy in general lets look in to the core literature i. e. basically to find out what are the impacts of declining dollar on the capital expenditure of US companies.
This part of the topic under consideration will be studied by taking examples of few US based firms there working after decline in dollar, the problems, profit or loss whatever they are facing. Who Is Benefited And How? Economically if we take a look on the declining dollars there are many companies, which can be benefited from it.For example tourism based companies, these companies are full of tourists traffic if there is a decline in dollar since the tourists from all over the world find their currencies powerful as against the dollar. (Investing happily, n.
p) Petroleum companies operating internationally and such companies like EADS have to bear all the capital expenditures in their own currency and pay their workers, raw material purchasing etc therefore if a dollar decline being in trade with US they have to face a loss since they will be paid less dollars in comparison to their currencies after exporting goods.On the contrary companies working abroad like YUM brands but are investment made by US are benefited by the decline in dollar. This is because whatever they earn is much likely to include in that countries’ GDP where it is situated but anyhow at last the revenues has to be added in the US GNP therefore investing cheaper dollars much will return much supply and greater earning to these countries. a company named Delhaize has a very good effect of declining dollar as compare to the Euro.
In local currency terms the sales of this company rose by$15. 5 billion, which was 3. 5 percent increase than before. By the decrement of US dollar besides the manufacturing sector there are oil companies working domestically and importing oil from the world, these companies mostly import their capital from rest of the world hence by falling dollar market value they have to pay less in terms of dollars against any other currency this the capital cost decreased and the companies are benefited in this case.(Investing happily, n.
p) (Market observation, n. p) The Critical Situations: While there are companies working overseas or domestically who have good impacts of declining dollar on their capital still there are some companies who have bad impacts on their cost of capitals and profits by the decrement of dollar. The critical situation occurs for the companies who are actually operating in US but originated somewhere else. In short when a dollar declines foreign investment declines as a response.
Since the return value for them to be added in their GDP is far less then the capital formation expenditure and already the cheaper dollar encourages the domestically produced good’s supply then these foreign based industries. The question here is, do the US based companies face their any critical situations when the dollar is declined? The answer to this question is, yes there exist some problems as well. The companies related to commercial real estate are faces a drastic decline due to the decline in dollars. The decline in dollar creates credit crunch sometimes and in order to resolve the issue steps and measures must have to be taken.
This a back hand procedure that whenever currency falls, on one hand the domestic demand increase so that production has to be expanded and increasing supply in economic terms decrease demand which in turn force the producer to increase price level to match the profit goals creating inflation in the society. Inflation is something harmful for any economy to prosper. In turn everyone will run towards the bank to get credit for meeting the capital requirements which will lead the banks to credit crunch and ultimately the economy will go down to recession. (Cappiello, n.p) How To Handle Problems: The problems can be handled in many ways.
Firstly to maintain the confidence of the customers on the firms operating domestically and overseas which are owned by the US. There need to be a proper system to circulate the money properly so as to avoid the credit crunch. Whenever inflation is created economy can never give its best, therefore it is equally important to control inflation in the economy. The decline of dollar creates credit crunch normally, which in turn give negative impacts on the capital expenditures of US companies.The international stock market when faces a constant downfall introduces tension and haphazard for the international investors, this situation can only be tackled by constant struggle to rise the graph of production and exports. (Cappiello, n.
p) The Contemporary Situation: The present situation of this phenomenon can be discussed by taking in view almost past 5-6 years performances. It has been observed that US currency has declined very vastly in last 5-6 years as compare to the past decade. This has however benefited the local producer to some extent but still it has adverse effects on the business and transactions abroad.(MacDonald, n.
p) Lets say the year 2002 was considered to be the year of recession but early recovery was observed. This year was a relax one because capital formation was higher and easier although the year 2002 faced credit crunch. In 2003 economists were afraid that the dollar is continuously loosing its value, which is making it not only weaker in terms of international trade but also the other countries depending upon it. In 2004 the declining dollar considered to put positive impacts on the economy.The researchers and analysts consider this year as the year of prosperity and Coming up to 2005 the year faced trade deficit.
Exports increased hugely this year and domestic markets did a better business. (Hagenbaugh, n. p) Last but not the least year 2007 is called the year of challenges for the US economy. The deficit faced by the housing sector in 2006 was somehow in 2007.
This year brought the message for the US business persons and economy analyst to rethink about the decline position, which however was beneficial, but to a small extent and the rest of the world is less in speed to face the currency fall down.Conclusion: We talk about capital in general, dollar and its decline, the impact of dollar on the capital expenditure and connected all these terms to the main area of study US. The concluding part of any research requires the summing up of everything mentioned before. Taking a brief review of this phenomenon we come to realize that the declining dollar has both good and bad effects on the capital expenditure of US companies. It is still difficult to analyze that the goods are greater than bad or bad or much more likely to happen than the good.The capital expenditures of US companies are relaxed in times of declining dollar however when dollar goes up the domestic demand decline and the capital expenditure have to be resist by the producer.
On contrary the results we obtained which are under the scope of this research shows that somehow the declining dollar turns to be heavy for producers when they return in the form of inflation. Whatever measures the Government, researchers might take to create a balance between the goods and bad this is un-deniable fact that the declining dollar creates the overall economy situation to be more complexes in long-term.A better practice is to maintain profit by maintaining a stable dollar position, so that the international market will see the dollar as competitive as other currencies. Short-term analysis might show more beneficial picture of dollar declining if the cost of capital is borne in to mind only. But long-term analysis shows that the constant decline of dollar might be disastrous in many ways for the US economy as well as for the international trade relation plus the countries, which are depending on the dollar position.
Clearly this was a very short, concise and limited review of the topic given. There can be much more complexities, explanations, and expansion made to make the picture more obvious to understand certain impacts and phenomenon but somehow we will end up by here, since the rest of research is beyond the scope of this paper.References Dollar decline masks solid Delhaize performance http://www. foodanddrinkeurope. com/news/ng.
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