Falling dollar proves a boon for Americans who invest in overseas markets
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You probably know that the dollar is plunging. That will make it expensive to travel overseas for the holidays or to buy something made in a foreign land.
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(InfoWorld) - The declining value of the U.S. dollar should allow PC vendors to offer bargains to people living in the euro zone, while U.S. consumers probably won't feel much of a pinch, according to a leading economist. The U.S. currency has suffered from a decision by the Federal Open Market Committee to lower the federal funds rate 50 basis points to 4.75 percent. That's the rate financial institutions charge each other for overnight loans and it has a big impact on overall interest rates in a country. The lower rate hurts the dollar because it causes investments to flow out of the U.S. to find higher interest rates elsewhere, such as England where the rate is 5.75 percent, or Australia where it is 6.5 percent. The Fed said it reduced the rate to stave off credit problems associated with theÂ bad-loans crisis in the U.S. housing market. A negative side affect for people in the U.S. is that the falling currency is leading to higher prices for some commodities. The price of oil, for example, rose to a record $83 a barrel on Thursday, largely due to the cut in the federal fund rate, according to Robert Mundell, professor of economics at Columbia University and the 1999 winner of the Nobel Memorial Prize in economics. Oil is traded globally in U.S. dollars, but oil traders have bid the price per barrel higher to offset the declining value of the U.S. dollar. Higher oil prices raise fuel costs for consumers, including heating oil and gasoline, and potentially mean higher prices for airplane tickets and shipping rates. The situation is far different for computer components, despite the fact they are also bought and sold in U.S. dollars around the world. While oil producers have the power to raise prices in order to compensate for the weaker dollar, makers of computer parts, for which the market is far more competitive, do not have the same type of leverage. The good news for people in the euro zone is that the euro rose to a record high against the dollar after the Fed's rate decision, so people in countries that use the euro should see bargains for a number of IT items. Currency traders bid the price of the euro to $1.41 on Friday, up from $1.37 at the beginning of September and $1.39 a day ahead of Tuesday's Fed rate cut. By comparison, the euro bought only $0.82 at its low point in October 2000. The stronger European currency should bring more bang for the buck, so to speak, unless retailers take advantage of better exchange rates to boost their own profits. For Americans, the news isn't bad. Despite the decline in the currency, component prices probably won't rise, Mundell said, because most of the computer industry is located in the U.S. and Asia. "Asia is a U.S. dollar area," he said, during a briefing with reporters in Taipei on Friday. Computer components are bought and sold in the U.S. currency, and nations in the region generally tie their currencies to the U.S. dollar. In addition, manufacturers are constantly working to lower costs, and these reductions are valued in U.S. dollar terms. One example of a computer component traded globally in U.S. dollars isÂ DRAM, where prices have fallen dramaticallyÂ this year. The contract price of the most widely used DRAM, 512Mb DDR2 (double data rate, second generation) chips that run at 667MHz, dropped to $1.75 each as of Thursday, down 70.5 percent since the beginning of the year, according to DRAMeXchange Technology, which runs an online trading site for the chips. The chip prices are falling because producers are churning out too many chips and causing a glut on the market.
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Apart from truffles and a variety of other imported foods, the sinking dollar has so far had a modest impact on the prices paid by American consumers.
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With the U.S. economy likely to slow next year, many investors are looking to add more international exposure to their portfolios in hopes of winning higher returns. A number of global mutual funds offer what seems like easy one-stop shopping, but experts warn that all are not created equal.
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Asian shares fell on Tuesday as a soft dollar and concerns about weak holiday spending in the key U.S. market prompted investors to unload shares in exporters such as Samsung Electronics  and Honda
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Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar.
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NEW YORK, Nov. 28 -- The U.S. dollar fell to a 20-month low against the euro Tuesday, the latest development in a year-long currency readjustment that could make some imported goods more expensive, but could also help American workers by boosting exports.
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Don't neglect foreign investments in your portfolio.
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With plunging exchange rates, American expatriates whose pensions or incomes are paid in dollars are scrimping.
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U.S. stocks could face a challenge  next week to bounce back from Friday's post-Thanksgiving drop  unless there's some tempering of the dollar's weakness that  sparked the sell-off.
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A weaker U.S. dollar is fueling  pent-up demand for overseas travel to the United States,  helping to pad the bottom lines of hotels and tourist  attractions.
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This is going to be the year the world learns to live with a cheaper dollar. How well it does that may have a profound effect on prospects for continued world growth.
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Daniel Altman explains why foreign investment in major American financial institutions may be a good sign.
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The dollar garnered support from a slide in crude oil prices.
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A drop in the value of the US dollar cannot by itself bring better balance to global trade without raising both US interest rates and recession risks, economists and a growing chorus of policy-makers say.
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Given the sorry state of U.S. manufacturing and the widening trade gap between U.S. and the rest of the world, it's understandable why there's been little hand-wringing over the falling value of the U.S. dollar. Since October, the dollar has fallen 4% against both the euro and the Japanese yen. And this week, the dollar hit the lowest it's been against the euro since March 2005.
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The dollar is likely to drop on concern that international investors are scaling back purchases of US assets, according to a Bloomberg survey of currency traders and strategists.