Financial System US Financial Markets Term Paper

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Interest rates are very low in the U.S. right now, and this should mean economic expansion. The U.S. is the largest single national economy is the world, so how the U.S. performs in terms of its economics is an important thing for the world. Growth in the U.S., spurred by low interest rates, should mean growth elsewhere as well, since the U.S. can buy more products from those countries and sell more products to them, too. If the economy begins to grow too quickly, the Fed will have to lower interest rates in order to slow down the pace of growth.

For companies that are looking to overseas markets, it is important to remember that there are foreign exchange issues. Foreign exchange rates are volatile, and this means that companies need to pay attention to how those rates move. A rate change could mean that something is either more profitable or less profitable, and that volatility can be dangerous for a business, and reflect on its profits in a bad way. Usually, the best countries in which to do business have stable currencies and large markets that allow for derivatives and easy purchase.

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Sometimes that is not possible, like with China, and the company must understand that it is taking a greater risk. Foreign exchange rates are also important for pricing decisions, something that a company must also consider when looking at a foreign market, as well as the cost of production. Some countries are cheaper for production mostly because of their exchange rates, and that creates opportunities. For example, a low U.S. dollar is better for exporters, but a high U.S. dollar is worse because U.S. goods are then more expensive in foreign markets.

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