An Example Helps Understand the World Economy

For dairy farmers in the United States, 2014 is an excellent year. Revenue from good prices for milk and milk products is up, and feed costs are down. Farmers can pay off debts and buy new equipment. Profits in 2015 are not expected to be as good. Why? Not because milk prices are expected to go down, and feed costs up, but because exports of cheese, whey, milk powder, and other dairy products are expected to decline.

     The U.S. dollar is strengthening in relation to foreign currencies. You  can check the value of the dollar against the Japanese yen, Russian ruble, and other foreign money at finance.yahoo.com/currency. On October 31, 2014, for example, one U.S. dollar only bought 109.21
Japanese yen or 41.01 Russian rubles. Today, a dollar can purchase 118.32 Japanese yen or 44.97 Russian rubles.

     How does the greater purchasing power of the dollar affect U.S. exports? People in foreign countries need to buy U.S. dollars before they can buy U.S. goods, such as cheese and whey. When their money can buy less expensive foreign currencies, they will buy less expensive products from U.S. competitors, and U.S. dairy product and other exports will decline.

     On the other hand, if a U.S. farm family always wanted to visit a foreign country, 2015 might be a good time to plan a trip. It could take fewer U.S. dollars to pay for foreign hotel rooms, food, and souvenirs, if foreign currencies are weaker in relation to U.S. dollars. (Learn more about foreign currencies at the earlier blog post, "When to Buy/Sell in the World Market.")