Introduction
The death of Osama bin Laden this week has seen the price of oil fall and the dollar gain some ground against other world major currencies.
As a matter of fact, this paper is talking about the demand and supply aspects that have been seen in the last two days of the week since the death of Osama bin Laden that was announced on Sunday by US president Barrack Obama (Olsen, 2011, p. 2).
We all know that the price of oil is affected by various demand and supply constraints and that is why this article resonates well with this economic concept. On the other hand, the price of the dollar is purely affected by the demand and supply aspects that are prevailing in the current market like what is happening now.
The dollar rose from a three year low and this is something that has caught markets unawares (Olsen, 2011, p. 1). On the other hand, the price of oil slid by more than one percent and this is expected to continue this week. This paper will mainly focus on the demand and supply of the dollar.
Discussion
Before the death of Osama bin Laden, demand for the dollar was down and low because people had put their money in safe haven assets. This had been done because investors were wary of numerous geopolitical risks that could befall the market as a result of terrorism activities.
Investors had put their money in other currencies and safe haven assets because of fear. This is as far as geopolitical risks in the market are concerned (Olsen, 2011, p. 3).
In this case, this means that the dollar was not highly demanded for market activities. The most notable implication is that its supply in the market was limited because of low market activities.
After the death of Osama, investors poured into equities thereby increasing the demand for the dollar. The price of the dollar went up because of supply constraints. In this case, the dollar index jumped up and this is expected to increase as time goes by.
Lowering of security risks is likely to further increase and push up the price of the dollar in the market (Olsen, 2011, p. 8). The greenback is likely to gain as time goes by because the market was not fully prepared to meet this increase in demand.
The aspect of demand and supply dictates that the price of a given good or service goes up whenever there is low supply in the market. This is what has befallen the dollar in the market thereby pushing its price up.
Demand and supply is the basis upon which price is set in the market. An economic and market equilibrium of the dollar will be arrived at after all this speculation in the market has been settled.
Supply of the dollar remained unchanged thereby pushing up the greenback and this is a basic law of supply and demand. It should be known that the price of the dollar will decrease as supply increases. This can be explained by the diagram below.
Conclusion
The supply and demand concept best explains the sudden change in the strength of the greenback. This is based on the current market happenings that have raised investor confidence in the wake of Osama bin Laden’s death (Olsen, 2011, p. 2).
The future of US index has risen steadily and this is based on the fact that there will be no geopolitical risks in the market. Supply and demand aspects are very important in the market and need to be understood for long term sustainability.
This is because they are the main determinants of price in the market. In this case, the market is always at the liberty of demand and supply shocks.
The functions of price in the case are the quantity supplied and the quantity that has been demanded. It should be known that the dollar is expected to gain as time goes by in coming weeks as the market readjusts.
Reference List
Olsen, R. (2011). Oil Falls, Dollar Rises after Bin Laden’s Death. Web.