Internet Exercises


1			"Asians are America’s bankers right now." A curious comment? Not really. The U.S. dollar is presently in its worst slide against major European currencies since 1987 while the Canadian dollar is riding a high compared to the U.S. However, experts agree that while Europe has traditionally been the focus of attention when the U.S. dollar goes into a slide, times have changed and it is Asia that should now be in the spotlight. Last year, Asians accounted for some 40% of the foreign investment flows into the U.S. So what does this mean for the U.S.? The U.S. has become dependent on Asia (while Canada has become more dependent on the U.S.). If the Asians pull out, and there are already signs that a pull out has started, there is little else to support the dollar. The length of the war against Iraq is also threatening the strength of the dollar. Go to www.exchangerate.com (or http://www.bankofcanada.ca/en/rates/exchform.html on the Bank of Canada site) and track the value of the dollar against both the euro and also several Asian currencies. Then, consider the effect of Asian investments on the value of the dollar. Does it make any difference to the U.S. whether investments are coming from Europe or from Asia? Why or why not? How can the fundamental approach to forecasting exchange rates be used to predict the value of the dollar in the situation outlined above? Source: "Sliding Dollar’s Fate May be Decided in Asia," The Wall Street Journal, 1/20/03, p. C1.




2			The euro, which recently hit a three-year high relative to the dollar, is attracting the attention of companies from around the world. In Europe, a region which relies on exports for 40% of GDP, companies that are exporting to the U.S. are watching their profit margins erode, while Japanese officials want to boost exports and growth through a weaker yen. Some experts see the rising euro as an opportunity in disguise, suggesting that the rising euro could put much needed pressure on companies to become more competitive. In addition, governments might be forced to revise labour regulations and cut taxes. Identify what steps companies that are being negatively affected by the rising euro should take to protect themselves. Some analysts have argued that the rising euro will prompt the European Central Bank to cut interest rates. Go to http://www.ecb.int/index.html and track the recent actions of the European Central Bank. What effect have the actions of the European Central bank had on the value of the euro? What are the implications of this for European and Canadian companies? Sources: "European Companies Count Cost of Weak Dollar," The Wall Street Journal, 1/28/03, p. A14. "European Firms Face Earnings Pressures From Weak Greenback," The Wall Street Journal, 1/20/03, p. C1.

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