Besides the deficit, there are other factors, which affect a currency’s exchange rates. I do not get the opportunity to discuss economics much since I graduated; I was the teaching assistant for the “bonehead economics” students study sessions.

When a country's interest rates are high relative to elsewhere this attracts inflows of money into a country seeking to take advantage of the high interest rates. This "interest differential" boosts the demand for the currency and can cause its value to rise. Currently interest rates are low in the United States, which is Mr. Greenspan’s responsibility.

The United States economic growth is weak compared to the European countries, and currencies are traded just any other commodity. Traders in the currency markets may take the slow growth to be a sign of general economic weakness and "mark down" the value of the currency as a result. The current exchange rate of a currency is an indication of the value the currency among traders.

Selling exports represents a demand for the domestic currency from foreign importers. When US consumers buy Spanish Olive Oil they supply dollars and this is eventually translated into a demand for euros. Similarly when consumers buy imports, they supply their own currency and this is eventually translated into a demand for foreign currencies. If a country is running a substantial trade surplus there is a large demand for the currency and its value should appreciate. By contrast a massive trade deficit usually causes the currency to lose value. Currently the United States trade deficit is growing.

So with these factors and others, which are too complicated to discuss, do not look for the dollar to improve against the euro. I believe the dollar will continue to weaken, so if you are going to travel make your reservations soon.

I am just as guilty as Mr. Greenspan because I will continue to buy Spanish Olive regardless if I am contributing to the trade deficit and the devaluation of the dollar. I like it that much!

Thank you very very much for your support! I'm embarrased

I started to work full-time a month ago, and it is all going very well.

I really would like to go to the US to make a MBA in one or two years, so if things go well you will have to stand me a little bit in the US hehehe Of course, if that is the case, I will warn you with anticipation so you can have time to run away (if not, beware I will try to contact you to have a beer or a coffee ).

As for the topic, gsobotta has explained it very well (I didn't know it worked that way to be sincere).

But in economy all runs according certain cycles, now dollar is appreciated compared with euros, and perhaps in a year we will see just the opposite

Fernando

You are right Fernando, and the world economy has its cycles. The world economy endeavors to achieve balance, or in economist terms the conditions which are necessary for an economy to be in general equilibrium, or in which the markets are all cleared. This never occurs because of the simultaneous interactions and interdependencies that exist between all the different markets in the world economy.

If you wait too long to come the USA get your MBA, a beer maybe more expensive here than in Spain.

Wonderful, Fernando, remember that you can count on me to provide you information when the time comes!
Cariños,
Carmen

Doña Carmen (Booklady) writes: Two more Prime rate hikes: one this Wednesday (10/11) and another on 14/12; then Mr. Greenspan steps down.

Actually, higher U.S. Interest rates attract Capital from abroad, so the net effect should be a strengthening of the U.S. Dollar vs. the Euro

Thank you gsobotta - your brief explanation made more sense than half the econ classes I ever attended!

Even with the horrible exchange rate, beer is still a lot cheaper here in Madrid! As is wine, water, most food, the theater, movies, clothing, rent and a whole host of other things. Though it is true that tourists get terribly gauged by a bad exchange rate, the cost of living is still significantly lower than any major US city, even given the atrocious exchange rate (says someone who gets paid in dollars but lives quite nicely in Madrid)...

Where can a person find the cheapest beer!

Fernando and Mariposita fly into Charlotte, NC and exchange 100 euros and received 130 dollars. They walk into a bar and purchase a pitcher of Miller Genuine Draft Beer for $5.00 dollars. They return to the airport for their flight back to Spain, while flying home the dollar strengths against the euro on the international currency market. Once in Spain, they exchange their $125 for 100 euros.

Who bought Fernando and Mariposita their beer?

While Eddie maybe right, there is a slim chance the Fed will raise interest rate. Federal funds futures show traders are pricing in about a 20 percent chance the central bank will lift the benchmark rate to 2.25 percent by year- end, after a quarter-point boost next month. It will have a neutral effect on the value of the dollar because high oil prices and sluggish job growth may hurt an economy already constrained by a near-record trade deficit Continued sagging consumption and unemployment has fueled speculation the Fed will then scale back interest-rate increases. There's no way the Fed can afford to keep on raising rates, risking a further slowdown in the economy.

I expect the dollar to weaken to $1.32 per euro or more in a year.

Now maybe General Motors and Ford can sell some of those cars they have had setting around for several months. There is a little more room in one of those than a SMART.

Gsobotta. in answer to your question. Nobody bought their beer. After flying from Spain to Charlotte just for a beer, they deserved to get one "on the house"!