Currency and Interest Rate Swaps and the Strong Dollar
Currency and Interest Rate Swaps and the Strong Dollar
The strong dollar is an advantage for the importer of the United States of America because due to the conversion rates, the overall payment of the bills remain at the same or lower levels. Moreover, when the position of US dollar is strong in the open markets, then the companies in United States can rely on the market position and save money in terms of hedging and forward contract. Similarly, from the exporter’s point of view, the strong dollar will collect US dollars at much favorable rates. Therefore, overall the strong US dollar is in the favor of the US economy. (Cox, 2015)
However, a strong dollar has one major problems which can cause massive damage to the overall economy of the United States of America. The main reason of the strength of US dollar is that the two main industries these days, oil and arms industry are dealing in the United States dollar. The risk for dollar is that the stronger dollar can force weaker countries to trade in other currencies such as Euro and other important currencies. In this case, the US dollar in other countries will come back to the United States economy and this supply of US dollar will damage the strength of US dollar and dollar will be devalued. Therefore, at the macro level, it is very important to maintain the value of US dollar at the reasonable but strong level to maintain the demand on US dollar in the international trade. (Kelly, 2014)
References
Cox, J. (2015, January 23). Lew: Strong US dollar is 'good for the world' Retrieved February 05,
2016, from http://www.cnbc.com/2015/01/23/lew-tells-cnbc-strong-dollar-is-good-for-the-us-its-good-for-the-world.html
Kelly, D. (2014, November 27). 3 Ways a Strong Dollar Impacts the Global Economy. Retrieved
Rudegeair, P., & D'silva, A. (2015, January 15). Bank of America fourth-quarter profit hurt by
low interest rates. Retrieved February 05, 2016, from http://www.reuters.com/article/us-bank-of-america-results-idUSKBN0KO17U20150115
