An Examination of the Long Term Consequences of A Weak Currency

Open Access
Author:
Carr, Delia Marie
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Gary Gray, Thesis Supervisor
  • Brian Spangler Davis, Honors Advisor
Keywords:
  • currency level
  • real appreciation
  • foreign exchange rates
Abstract:
Most currency debates focus solely on the short term consequences of a strong or weak currency. The commonly held belief that a strong currency is good for citizens in the short run because of their increased buying power on a global scale, and that a strong currency is bad for businesses because it promotes an environment that makes expansion more difficult may hold true. However, this thesis sets out to prove that there are many long term consequences to weak currencies that can have greater and longer lasting effects on a nation’s economy than the short run positives a weak currency provides for domestic citizens. In a period of weak currency, businesses can be left exposed to foreign takeover, domestic citizens may not support businesses because they have a decreased buying power, and industries that play a large role in the economies of countries across the globe such as food, durable goods, homeownership, and motor vehicles are more susceptible to currency fluctuations and take a longer time to recover from changes in consumption patterns. Furthermore, this thesis examines the role that real appreciation plays in currency exchange rates between countries and examines whether or not Americans are actually traveling to foreign countries at a more affordable price when the US Dollar is stronger than other currencies.