EURO-DOLLAR PARITY 1

Euro-Dollar Parity

Student Name: Amritpal Amritpal

Institution: Niagara college(Toronto)

Course: Macro economics

Date:08/07/2022
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Euro-Dollar Parity

Horton (2022) reveals parity in the European and American currencies, Euro and Dolla

parity, which are worth replicating financial degrees, implicate the currency exchange rate, and

can have a significant verdict on economic projections. The article demonstrates the implication

of the Dollar’s strength serves as good news for Americans considering a vacation to Europe and

even purchasing goods abroad. The situation that strengthens the American Dollar denotes a

possible reduction of prices of varied commodities, including grains, thereby potentially easing

the relentless inflation that deems businesses and households’ expenses surging. One can

consider the Dollar as a haven, and a situation that triggers it to strengthen entails those investors

can easily maneuver the uncertain economic conditions in Europe. The Euro-Dollar parity is a

significant psychological milestone that would not necessarily result in a turning point for the

globe’s currency, which was well off its previous peak near $1.6 (Horton, 2022). The currency

parity entails that varied tourists, particularly American tourists in Europe, will experience

reduced expenditures in varied places, including hotels and restaurants, and also cheap admission

tickets. The currency parity makes it easy for tourists, and a lot further now, they can do a lot

more on their varied European trips since it triggers low and competitive prices for varied

commodities and reduced exchange rates.

Question 1.

Over the recent years, the Euro-Dollar rate of conversion has been drastically declining,

and in 2022, one Dollar was valued at the equivalent of one Euro. This economic condition

marks the first time these two competing currencies have settled at parity since 2002. For

instance, in 2002, the Euro traded between $0.87 and $0.9. It seldom broke slightly above the

Dollar until it was launched as a currency and when t was being used for electronic transactions
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in 2002 (Amadeo, 2022). Between 2002 and 2008, Euro rose by about 63% and was worth more

than $0.90 in 2002, and by 2007, its value increased to $1.46. euro started the year 2008 at1.47

but subsequently declined its value to about $1.3 by the end of the year. In 2009, Euro had a

strong value and was trading at $1.4 before falling to $1.25 as the European Central Bank

upsurged its benchmark interests to an average of 15%. This condition was significantly

thwarting chances of European economic recovery, and the peril of renewing a recession was

offsetting the probability of higher returns of withholding euros, euro-dominated investments, or

bonds. Statistics demonstrate that Euro has been depreciating in the recent past, devaluating by

an average of 15.0% against the United States Dollar. Between 2001 and 2008, the Euro-Dollar

experienced a steep increase and managed to maintain an average annual exchange rate of 1.47,

which entails that one could exchange one Euro for $1.47. According to Amadeo (2022), this

value decreased to $1.12 by 2019, replicating dynamics in the monthly euro-dollar exchange

rates in recent years. Shifting Dollar and euro currencies denote a significant buying power of the

duo currencies, which has a profound implication on businesses that sell or buy foreign raw

materials. Strengthening the Euro can potentially offset the upsurging inflation in the 19

countries that use the Euro currency, connotating that any raw material imports can be more

expensive and bring about winners and losers, depending on the mix of exports and imports.

Question 2.

The Euro-Dollar parity significantly affects Americans who perceive Europe as their tour

destination. The near 1-to-1 ratio or euro-dollar exchange rate entails that Americans traveling o

Europe will not only enjoy an easier period deciphering the price of commodities, but they will

also enjoy greater spending power when visiting Europe and varied Euro-zones, including

Germany, Spain, Greece, and France. The strongly valued dollar against the euro serves as a
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significant relief for varied American tourists visiting Europe since it assists in offsetting the

costs of skyrocketing airfares that a rise has influenced staffing shortages, oil prices, and the rate

of inflation, which subsequently implicates varied prices of commodities such as food and

affiliated services (Eurostat, 2022). The American organizations that engage in myriads of

businesses in the European countries will perceive the revenue from those enterprises shrink

when they convey their earnings back to the United States. If the revenues from Europe remain

constant will effectively cover the expenditure costs there, and the foreign exchange rate

becomes a less significant matter. There is a significant concern for stronger United States

Dollar-made products, which will become more expensive in overseas markets such as Europe

since it will broaden the trade deficit and minimize the economic output. This situation will

cultivate a price edge for foreign products in the United States. The euro-dollar parity hurts

American exports abroad since buyers' purchasing power is significantly weakened, and the

situation implicates currency translations on repatriated revenues for the United States

multinationals (Eurostat, 2022). The stronger dollar value against the Euro influences or lowers

prices for varied products such as grains and industrial-grade metals that have recently become

more expensive. A stronger dollar dictates the global prices of varied commodities since most of

these goods are priced in American dollars.

Question 3.

The American dollar can be considered strong when it rises and surpasses the value of

other currencies in the foreign exchange market. Strengthening the American dollar entails that it

can purchase more foreign currencies. In most cases, it is beneficial to the Americans traveling

abroad while disadvantages the foreign tourists visiting the United States. This situation hurts

exporters since domestically manufactured products are relatively more expensive overseas
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(Eurostat, 2022). For instance, an American-made locomotive worth $30000, with an exchange

rate of $1.35 per Euro, would trade at €22,222 in Europe; however, the rice would increase to

€26,786 if the dollar happens to strengthen and trade at $1.12 per Euro. This situation affects the

pay balance since organizations based in the United States and engaging in global businesses can

potentially suffer as revenue from foreign markets will significantly decrease in value on their

varied balance sheets. Entrepreneurs investing in such establishments suffer a negative impact

since their expected revenues decline as the dollar weakens foreign currencies that esteemed

clients trade using.

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References

Eurostat. 2022. Exchange rates and interest rates. https://ec.europa.eu/eurostat/statistics-

explained/index.php?title=Exchange_rates_and_interest_rates

Kimberly Amadeo. 2022. Is time running out for a low-cost European vacation? Euro-to-Dollar

Conversion and Its History. https://www.thebalance.com/what-is-the-euro-to-dollar-

conversion-its-history-3306091

Veronica Horton. 2022. Why Now Might Be a Great Time to Take that Trip to Europe?

https://econeveryday.com/why-now-might-be-a-great-time-to-take-that-trip-to-europe/