Managerial EconomicsWeek 4 Individual Work Assignment

Managerial EconomicsWeek 4 Individual Work - Assignment Example The U.S. dollar is a strong currency compared to other currencies. However, America is in trade deficits in international money markets. A clear short term trend in the U.S. dollar is that it rose some 14 percent in relation to the euro and even more to the Japanese yen. However, towards the Chinese renminbi the U.S. dollar decreased. The decrease was after the increase in the dollar rate by the Chinese central bank The main factors affecting dollar/euro exchange rates include relative real interest rate, the relative price, the relative fiscal position, and Percentage product prices. The euro/dollar exchange rate also asymmetrically responds to macroeconomic news and other factors in the economy. However, predicting the euro/dollar exchange rate may seem very hard due to lack of precise models and other unexpected events that work within the economy. There are also other fundamental and non-fundamental factors that affect the euro/ dollar exchange rates in global markets. Trade deficits and job market significantly affect the euro/dollar exchange rates. Increasing trade deficits coupled with a weak job market may lead to the strengthening of the euro. In contrast, the U.S. Dollar may weaken. Political factors such as world security also affect euro/dollar exchange rates. Factors such as war and fears of terrorism and war and accounting issues in the U.S. resulted to reduced strength of the U.S . dollar. Factors that led to a decrease in power of the U.S. dollar make the euro stronger. However, in most cases, euro/dollar exchange rates patterns are usually nonlinear in nature. Therefore, market forces pull back the exchange rate to PPP equilibrium Currency exchange rates are important factors that affect operations of the export markets. Operating in export markets becomes more difficult given the fact that it is very difficult to predict the future of the worldwide currency market. Factors related to supply and