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I'm having a hard time visualizing why a strong dollar would make an imported good cheaper? If I buy an ounce of gold in the US for \$1,353.70 (todays rate) and I buy an ounce of gold in Europe, would it not cost me 1,092.81 Euros at todays exchange rate of \$1.24 to 1 Euro? Why would I expect to get to get more than an ounce of gold if I spend \$1,353.70 in Europe?

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Consider that you want to purchase a product from a EU country, pricing their products in Euros.

Let’s say that you want to buy a product that costs 100 euro. No matter what the relationship is between USD/EUR, the product will still be 100 EUR.

Let’s say the USD/EUR is 1.24 as in your example - that means for every 1.24 USD you have, you get 1 EUR. If you want to buy the product you will then need 124 USD to buy a 100 EUR product.

Now let’s say that the USD strengthens compared to EUR and the new exchange rate is 1.15 instead of 1.24. Using same logic as above, you now need 115 USD to purchase that same product, giving you a discount of 9 USD just because of the new exchange rate.

Remember the product is still 100 EUR - but you can now buy more euros for your dollar than you could before.

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When the dollar appreciates relative to the euro, then either gold has gotten cheaper in dollars or more expensive in euros or both.

A better example is some European product. Then, if that products has a constant price in euros, an appreciating dollar means it's cheaper in dollars.

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Here's why:

  • Stronger dollar implies you can purchase a larger quantity of foreign currency per dollar.
  • The larger amount of foreign currency available to you implies you can purchase a larger quantity of a foreign good in its local market.
  • This is the same as the per unit price of the product being reduced, allowing you to buy more of it per dollar.
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