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L.8 · BEGINNER · 2 MIN

Trade, Exchange Rates, and the Dollar

Over 40% of S&P 500 revenue comes from abroad. The value of the dollar directly affects corporate earnings, trade flows, and investment returns.

Quiz · 5 questions ↓

Who wins and loses from a strong or weak dollar

Dollar StrengthWinnersLosers
Strong dollarUS importers, travelers abroad, foreign bond buyersUS exporters, multinationals, emerging markets
Weak dollarUS exporters, multinationals, commodity producersUS importers, travelers, foreign debt holders

How a strong dollar shrinks overseas earnings

When the dollar strengthens, multinational companies like Apple and Coca-Cola earn less when they convert foreign revenue back to dollars. This is called currency translation risk.

Check the dollar index and major currency pairs

Check the FX section in the Markets view for current dollar index (DXY) and major currency pairs.

How a rising home currency hurts an exporter

Brazilian agribusiness exports $500M of beef to China, invoiced in USD. Over 6 months, the Brazilian real strengthens 15% against USD. The company is unhedged. What happens to its home-currency revenue in reals?

Why currency is the hidden variable in foreign returns

Currency is the hidden variable in global investing. A foreign stock might gain 15% in local currency but only 5% in dollar terms if the dollar strengthened.

Check your understanding

Sit with the ideas.

The Fed raises rates aggressively while the European Central Bank holds steady. The dollar strengthens 12% against the euro over 6 months. Which of the following is the most likely consequence?

Why:
Continue this lesson in the appAdaptive practice · saves your progress · remediation when you miss

Other lessons in this course.

  1. 01Inflation: What It Is and Why It Matters
  2. 02The Fed and Interest Rates: How Policy Moves Markets
  3. 03The Yield Curve, in Plain English
  4. 04GDP: What the Economy Actually Produces
  5. 05The Business Cycle: Timing the Economic Seasons
  6. 06Fiscal Policy: Government Spending, Taxes, and Deficits
  7. 07The Fed’s Advanced Toolkit: QE, QT, and Forward Guidance
  8. 08Trade, Exchange Rates, and the Dollar— reading now
  9. 09Financial Crises: How Economies Break Down
  10. 10How the Federal Reserve Actually Works
  11. 11How Banks Create Money (and Why Reserves No Longer Bind)
  12. 12Reading a Bank Income Statement
  13. 13Bank Capital, Tier 1 Ratios, and Stress Tests
  14. 14Yield Curve Shape and Bank Net Interest Margin
  15. 15How a Modern Bank Run Unfolds
  16. 16National Income Identities: Why S = I and Y = C + I + G + NX
  17. 17Current Account = Capital Account: Trade Deficits as Inflows
  18. 18Fiscal Multipliers: Why $1 of Spending Isn't $1 of GDP
  19. 19Exchange Rate Regimes and the Impossible Trinity
  20. 20Capital Flows and Sudden Stops: Why EM Crises Look Alike
  21. 21The COT Report: Reading Speculative Positioning
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