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International Finance

8. The European chemical industry pays for an estimated 79% of its oil based feedstock in dollars. Thus, its costs are declining sharply because of the drop in the price of oil combined with the sharp decline in the value of the dollar. What is the likely impact on the European chemical industry's profits of the dollar decline? Will it now be more competitive relative to the American chemical industry?

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ANSWER. The implication that lower dollar oil prices combined with the lower value of the dollar, by sharply cutting the costs of European chemical companies, will make them more competitive vis à vis American chemical companies is fallacious. Whether measured in dollars, DM, French francs, or British ...

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