Comment on the headlines in The Wall Street Journal
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Comment on the following headlines in The Wall Street Journal:
a. "Sterling Drops Sharply Despite Good Health of British Economy: Oil Price Slump Is Blamed" (January 17, 1985).
b. "Dollar Surges as Coup in Soviet Union Revives Unit's Appeal as a Safe Haven" (August 20, 1991).
c. "Dollar Plummets on Soviet Coup Failure" (August 22, 1991).
d. "Dollar Falls Across the Board as Fed Cuts Discount Rate to 6.5% From 7% (December 19, 1990).
e. "Canadian Dollar Likely to Fall Further On Recession and Constitutional Crisis" (September 28, 1992).
f. "Dollar Soars on U.S. and Iraqi Tension, Hints of Possible Lower German Rates" (December 12, 1992).
g. "Inflation, Slow Growth Seen Spurring Latin America to Devaluate Currencies" (January 22, 1990).
Comment on the following headline from The New York Times. "Germany Raises Interest Rate, and Value of Dollar Declines" (October 10, 1997).
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a. "Sterling Drops Sharply Despite Good Health of British Economy: Oil Price Slump Is Blamed" (January 17, 1985).
The value of the pound is very sensitive to the price of oil because England has large North Sea oil reserves and is a major oil exporter. Hence, British wealth is positively related to the price of oil. Any event that reduces a nation's wealth will also tend to drive down the value of its currency. The health of the British economy was already factored into the value of the pound. The new information about the price of oil drove down the pound's value because it indicated that British wealth would be lower than was previously expected.
b. "Dollar Surges as Coup in Soviet Union Revives Unit's Appeal as a Safe Haven" (August 20, 1991).
With the reduction in world tension occasioned by the decline in Communism's appeal in the Soviet Union, investors had less need for the U.S. dollar as a safe haven. The Soviet coup brought back the threat of Soviet militarism and led investors to desire once again to hold an increased share of their wealth in dollars. This ...
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