Dollar vs. Euro

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1. Introduction Since the appearance of the EURO (€) in the international trading system, the American dollar ($) has lost its domination and role in the financial world. Consequently, there is not only a great disparity in the exchange rate between the two currencies in favor of the EURO, but a growing problem in the US economy as well. Table 1, which can be found in Appendix B, shows the course and relationship of the exchange rates of the two currencies from 1999 until now. The scope of this paper is to approach as best as possible the various reasons for this disparity and try to predict the future of the two currencies based on accurate and up-to-date information. At this point, the authors would like to make clear that they do not…show more content…
At this point we should clarify that the exchange rates are influenced by the combination of the reasons mentioned above. Nevertheless, we will try to break them down and examine them individually. 2. Interest Rates One of the most important factors that affect and change the exchange rates is the interest rates, which are announced by the FED and the ECB. With the terms FED and ECB, we refer to the Federal Reserve System and to the European Central Bank. The former is the central banking system of the United States, whereas the latter is one of the world 's most important central banks. However, both of them are responsible for the monetary policies in the countries or states that they are consisted of, by setting a wide variety of rates, in order to stabilize their economies. The two main and general rates which affect the exchange rates are the borrowing rate and the deposit rate. Currently, the rates for the United States are 5.25% and 5.25% respectively, whereas for the Eurozone the rates are 5% and 4% respectively. This means in simple and broad words that it might be more profitable for someone to borrow money from the Eurozone, since he will have a gain of 0.25%, but it will be more profitable if
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