manufacturing) and other means ons 6. Reread the Country Focus on the U.S. dolla

Question

manufacturing) and other means ons 6. Reread the Country Focus on the U.S. dollar, oil prices, and recycling petrodollars, then answer the following questions: a. What will happen to the value of the U.S. dollar if oil producers decide to invest most of their earnings fiom oil sales in domestic infrastructure projects? b. What factors determine the relative attractiveness of dollar-, euro-, and yen- denominated assets to oil rs flush with petrodollars? What might lead them to direct more funds toward non-dollar- denominated assets? c. What will happen to the value of the U.S. dollar if OPEC members decide to invest more of their petrodollars toward non-dollar-denominated assets, such as euro-denominated stocks and bonds? d. In addition to oil producers, China is also accumulating a large stock of dollars, currently estimated to total $3.3 trillion. What would happen to the value of the dollar if China and oil-producing nations all shifted out of dollar-denominated assets at the same time? What would be the consequence for the U.S. economy? e International Monetary System Mo 319 Chapter Eleven The

Explanation / Answer

Petrodollars refer to US dollar denomination of oil revenues earned by OPEC countries. If they decide to invest more their USD in non-dollar denominated assets then the supply of USD will increase in the forex markets. As a result, the USD will depreciate against other currencies.

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