Consequences Of Weak Us Dolar To Czech Company

1842 words - 7 pages

“Dollar sinks lower after US data.”“Czech koruna rises to record highs against euro and dollar.”“Dollar Falls Again, Euro Zone Divided.”We can see the headlines mentioned above and very similar ones in various newspapers all around the world nearly everyday. I have chosen this topic as my post-work individual assignment because the weak dollar is influencing my everyday work. I work as a launch manager for a Czech company owned by an American company, and I am responsible for launches of all products produced by the Czech company in all countries.I do not want to analyse why the dollar is weak or what should be done to improve the situation because there already exist many articles about this topic and because I am not an expert for exchange rate markets. I would like to think about and to discuss the consequences related to my job and company.After the US government announced a bigger-than-expected decline in job numbers last month the dollar fell down to a record low against the euro, above $1.54 (data from 7th March 2008), and at the same time fell against a basket of major currencies. A weakening US economy means lower interest rates and lower dividends on US assets.Nearly daily we can hear new information about bad US economy which causes deeper and deeper collapse of the dollar. The Federal Reserve lowered a key U.S. interest rate by three-quarters of a percentage point to 2.25 percent, but investors did not seem to care because the cut was smaller than many had expected (18th March 2008). In spite of series of interest rate cuts and liquidity-providing measures, the US economy has decelerated sharply. A recent report shows a loss in jobs, reduced factory output and a drop in retail sales.On the other hand economists say that the Czech koruna is now the fastest appreciating international currency. The Czech koruna has appreciated by 6 % against the euro and 7.8 % against the dollar since the beginning of year 2008. Everybody is afraid of recession in the USA and that is why all are selling the weak dollar and buying currencies which have tendency to grow. According to statistical data the Czech koruna has been appreciating by 3.5 % (on average) against the euro per a year during the last 8 years. And if we compare the Czech GDP, the interest rate, which is now 3.75 %, and continuing growth of the Czech koruna with information related to the dollar it is easy to answer which currency investors prefer.The strong Czech koruna means bad and also good news. Good is that it helps to keep the inflation low and that we are approaching advanced countries much faster. It is good for all importers, because they can buy cheaper goods. Such a strong currency is bad news for all exporters, because their costs counted in the Czech koruna remain at the same level but the real value of a selling price counted in the euro or the dollar is lower.To see trends in exchange rates since the Euro has been introduced I used tables of...

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