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How would a rise in the euro affect exporting France wine to the U.S. as compared to...

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lscrivy | Student, Undergraduate | Salutatorian

Posted March 7, 2012 at 2:30 PM via web

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How would a rise in the euro affect exporting France wine to the U.S. as compared to the impact of Germany importing semiconductors from the U.S.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted March 7, 2012 at 2:37 PM (Answer #1)

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I assume that you are talking about an increase in the value of the euro against the dollar.  If so, the rise in the euro would (all other things being equal) decrease the exports of French wines to the US while increasing the amount of semiconductors imported to Germany from the US.

The reason for this is that a firm that wishes to buy from a firm in another country must first buy the currency of the other country to use to buy the goods.  The US importers must buy euros to pay the French wine exporters.  The German importers must buy dollars.

In the case you have described, euros come to be worth more relative to the dollar.  Now every dollar buys fewer euros so Americans have to pay more in dollars for every bottle of wine.  Now ever euro buys more dollars so German importers have to pay less for each shipment of semiconductors.

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