Question

Is it to your advantage to trade stock in the international market? Would you get value for your American currency? What is the value of the Euro in relationship to the US dollar? Do you feel that the Euro or any other currency can really challenge the US dollar as the dominant currency in the World? Why or why not?

Answer 1

According to comparative advantage theory the nation should specialise in the production of commodities s in which it's absolute disadvantage is small and import the commodity in which it's absolute disadvantage is greater. No it only tells us the limits within which commodities will be exchanged and amount of gain to both nations but not how gains from trade will be distributed

Dollar euro exchange rate shows how much units of dollar can be exchanged per euro. This rate is determined in foreign exchange market. Greater demand for euros in relation to supply and smaller demand for dollars causes the dollar value of euro to rise. Smaller demand for euros compared to supply and greater demand for dollars cause dollar value of euro to fall. Note demand and supply in turn depend on imports, exports, capital movements etc