Despite having one of the leading positions in the financial market, the dollar is affected by the externalities due to the correlation to the other currencies (Madura 306). Firstly, the position of the dollar has to be discussed in relation to the exchange rate while determining the potential fluctuations of the selected currency. It could be said that the current stability of the US dollar is questionable, as it is dependent on the crude oil prices, and China is the vehement player in the market currently (Elliot par. 1). In turn, it also reduces the value of Yuan to increase its market share.
Additionally, the described competition in the oil market causes sufficient fluctuation of the dollar while comparing it to the value of the other currencies (Lizardo and Mollick 399). Furthermore, the U.S. dollar uses the floating exchange rate, and it makes it dependent on the other currencies (Bigman and Taya 37). In the end, the presence of these matters is the primary threat to the favorable development of crude oil prices in the United States and the sustainability of the currency. It could be said that the vehement dollar’s dependency on a plethora of external factors makes it highly vulnerable and risky for business operations at the international level.
In turn, the functioning of the banking system of the United States of America has to be assessed in terms of safety and the presence of the banking crisis. The banking system is a vital element to maintain the functioning of businesses and organizations, and it has to be described to determine its current state. Firstly, it has to be mentioned that the severe banking crisis was present in 2010-2011 in the United States of America (Welfens 459). Despite the presence of the long-lasting consequences, the country was able to stabilize its condition by introducing various reforms and maintaining the budget.
It could be said that based on the information provided above about the American banking system could be considered safe at the moment. However, the understanding of the potential alterations in the economic functioning due to the high dependency on the international relations and increase of the financial debt due to the rising states of expenditure will have a beneficial influence on the portrayal of the overall monetary image of the country. Furthermore, the awareness will assist in the prediction of the potential development of the economy towards the financial crisis.
Lastly, the overall favorability of the economic system has to be evaluated to define the potential steps to avoid financial failures. Despite the current instability of the economy, the overall financial condition could be considered as being favorable for the development of the business entities due to the presence of various enhancers of the present situation such as tax incentives (Welfens 330). The first step is to evaluate the current state of the economy, as it will contribute to the definition of whether the export is a relevant decision.
In turn, one of the steps is the application of hedging strategy to maintain the cash flow in balance while having export activities during the vehement fluctuations of the exchange rates (Goyal par. 1). This step is applicable if the export is a necessity. Furthermore, the company has to monitor the possibilities for tax reductions, grants, awards, and programs to enhance its development. Lastly, the research and development have to be considered as a priority and utilized with the other processes simultaneously on the regular basis, as it will help maintain competitiveness on the market while discovering new potentials and opportunities.
Works Cited
Bigman, David, and Teizo Taya. Floating Exchange Rates and the State World Trade and Payments, Washington, DC: BeardBooks, 2003. Print.
Elliot, Larry. “Oil Prices Forecast to Fall to $20 a Barrel Predicts Morgan Stanley.” The Guardian. 2016. Web.
Goyal, Ashima. “Dealing with Currency Volatility.” Business Line. 2013. Web.
Lizardo, Radhames, and Andre Mollick. “Oil Prices Fluctuations and U.S. Dollar Exchange Rates.” Energy Economics 32.2 (2010): 399-408. Print.
Madura, Jeff. International Financial Management, Mason: Thompson South-Western, 2006. Print.
Welfens, Paul. Innovations in Macroeconomics, New York: Springer Science+Business Media, LLC.