Global Accounts (Essay Sample)

Global Economics
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The U.S dollar’s value has been dropping for the last eighteen months. It has been experiencing declines that have reached as high as 94.77% according to the UK market oracle. The trend as compared to other big currencies could be characterized as a roller coaster ride. It can be owed to a number of different factors. One, the dollar’s purchasing power is overvalued. Since the dollar makes significant strides in developing countries, its purchasing power is compared to this power and hence causing a drop from the big currencies. Another reason for the fall could be owed to the market’s prime focus on quantitative easing that is practiced by the European Central banks, this is seen to be in contrast with the feds raising interest rates. The decline to raise rates saw a drop on the dollar and a rise of almost two percent each by the Euro. The drop can generally be owed to the in adjustment of interest rates by the Federal Reserve.
Apart from Hot money being stolen money marked for later recovery, it can be defined on a more economic basis. Hot money is the cash that flows in the market normally, that investors look to make the most out of in the shortest period possible. This means that it is money investors look to get highest interest rates from, in the shortest amount of time. In this way investors look to investors look to move from low interest countries to countries where they can get the highest interest rates. Carry trade is therefore the transfers made from various low to high interest countries. Some reasons given for the money returning to the USA are that the transfers would cause an imbalance in payments. Since the money move relatively fast through the markets, the wave causes instability. The instability is mostly felt in countries that are developing and hence easiest to outsource and earn higher interests. Investment in developing countries aims at making the best of hot money.
Historically, the relationship between the price of oil and the value of the dollar cannot be denied. The relationship is such that the dollar fell when oil ...