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Learning Goal: I’m working on a business multi-part question and need an explanation and answer to help me learn.
Title: Europe is on sale. Why the dollar-euro exchange rate is a win for Americans
Source: https://www.npr.org/2022/07/16/1111572775/dollar-euro-exchange-rate-parity (Links to an external site.)
This week I wanted to talk about the exchange rate and what it is currently looking like for the dollar and euro. Last week, inflation was one of the subtopics, and that correlates with why the exchange rate is doing so well now. For the first time in about 20 years, the dollar and the euro are worth almost the same. Much of this is due to the skyrocketing interest rates involved with inflation. Being in the military for over 10 years allowed me to see so many parts of the world, from multiple states to South Korea and all over Europe. Because of this opportunity, I had to pay attention to the exchange rate for the dollar almost everywhere I went, so this particular topic is interesting to me and something I have had plenty of experience with.
The Module 7 media part 8 and 9 discuss appreciation and depreciation. One means an increase in value while the other means a decrease. It also mentioned that when two currencies are being compared, the simple equation e = b/a can be utilized. If e increases, country a will increase with b decreasing. So, in terms of the dollar and euro, e = euro/dollar. So why is the exchange rate so close? The euro is depreciating due to the ongoing war in Russia, the leading supplier of oil and gas to Europe. Russia currently has a major natural-gas pipeline feeding into Germany, and there are concerns that they will cut off that energy supply. With that fear in sight, the euro dropped last month. On the other side of the pond, the dollar has increased because of two things: it is the dominant global currency and the soaring interest rates. Turns out, a potential recession is good for the dollar. “’Higher interest rates generally lead to a stronger currency’ says Jane Foley, the head of foreign exchange at Rabobank” (Gura, D. 2022). Investors seek out dollar denominated investments to earn a higher return, so the dollar starts to look a lot better when its severely inflated.
Thought Evoking Questions
With the dollar value on the rise, is there any potential backlash to it becoming “too” powerful? If yes, what are they? If no, why is that?
How can Europe turn around the value of the euro outside of Russia’s pipeline?
Tell me any country you would want to visit and state its currency and exchange rate
Question 2 ( Response to this Statement) Thank you very much for an interesting open economy modelling presentation and paper! Overall I think the result of this modelling exercise is rather encouraging, even with Zero Lower Bound constrains accounted. Yes, demand shocks from abroad do affect US economy, but the projected % changes in the US GDP growth are very small compared to the benefits provided by the open trade.For your question 1, I understand that the US has already implemented quite a lot of tariffs! As well as other countries – on the US. Please see for example here: https://taxfoundation.org/tariffs-trump-trade-war/ (Links to an external site.). Like increasing taxes, increasing tariffs I believe will shift Aggregate Demand curve to the left and result in the decrese of GDP growth. Erica York from a referenced paper estimates that tariffs currently imposed by US will reduce long-run GDP by 0.22% and eliminate 173,000 full-time equivalent job
Question 3( Responded to statement)Discussion 5 – Confirmation Bias, “Our company is devoid of confirmation bias” … Change My MindAccording to Gary Klein from PsychologyToday (2019), Confirmation bias is the tendency to search for data that can confirm our beliefs instead of looking for data that might challenge those beliefs.Conclusions we draw from a piece of biased evidence are more likely to be false than those we draw from objective evidence. It is debatable whether confirmation bias is a shortcut that the brain uses when gathering and interpreting information. I work in the R&D department, where we are responsible for developing new products and carrying out cost savings initiatives. We collect a lot of data and present it to manufacturing executive teams. Under experimental conditions, decision-makers, mainly plant managers and longer tenure employees, tend to assign greater value to the evidence confirming their existing beliefs rather than evidence presented as new ones.Evaluating evidence takes time and energy, so our brain looks for shortcuts to make the process more efficient.Another example many of us have seen during the meetings is why confirmation bias extends to the groups. When interacting with others, we tend to adopt similar beliefs to fit into the group, better calling it a one-sided attempt to rationalize a particular point of view. We know confirmation bias is actual, exists, and possibly happens more frequently than we know; we should take steps to avoid it and be aware that it is a problem.References:Klein, G. 2019. Psychology Today. The Curious Case of Confirmation Bias. https://www.psychologytoday.com/us/blog/seeing-wha.
Question 4( response to statement)”Our company is devoid of confirmation bias” … Change My MindFor this assignment, I spoke with a safety management intern at an electrical contracting company. They were needing to quantify and explore and understand the event and issue reports on damaged company property and vehicles. Although the reports were weakly quantified through reporting at routine safety meetings, a compiled event report with details was limiting. In general, corporate executives were likely to make the conclusion that they have a bunch of careless drivers that aren’t being careful enough with company property. So this individual had an important task ahead. They retrospectively pulled the notes from each meeting and created a data spreadsheet to include the issue, the season, the division, and the type of incident (i.e., personal, property, vehicle), acted or acted upon.This approach to gathering more specific data, and compiling the data for type, season, and division has allowed them to report back to corporate to drive additional and new perspectives. The work provided a basis for showcasing new perspectives, vehicles backed into by others, environmental issues, and although there is probably still concern of careless employees or bad drivers, that too can be somewhat quantified per company division and whether acted or acted upon. This data supported a change in corporate perspective that the main issue was not that staff just don’t care enough to maintain company property. The safety manager intern said they had to be conscientious of their own bias, as some meeting reports lacked details, so they were in a position to interpret data to enter it, and of course wanted staff to be well represented and show that staff are being safe. Following this conversation and sharing about this class and cognitive bias and data assessment, the safety management intern offered that he appreciated this topic being covered in psychology and leadership classes and has had many opportunities in management to feel the pressure to support staff and yet meet company goals and address issues and lead continuous improvement. So, to summarize, I disagree with this statement and hope this example supports that any company must diligently and purposefully work with processes to recognize and avoid confirmation bias.