Global Business Today 8th Edition by Charles Hill

Exercise 26

Reread the Country Focus on the U.S. dollar, oil prices, and recycling petrodollars, then answer the following questions:
a. What will happen to the value of the U.S. dollar if oil producers decide to invest most of their earnings from oil sales in domestic infrastructure projects?
b. What factors determine the relative attractiveness of dollar-, euro-, and yen- denominated assets to oil producers flush with petrodollars? What might lead them to direct more funds towards non-dollar-denominated assets?
c. What will happen to the value of the U.S. dollar if OPEC members decide to invest more of their petrodollars toward non-dollar assets, such as euro-denominated stocks and bonds?
d. In addition to oil producers, China is also accumulating a large stock of dollars, currently estimated to total $1.4 trillion. What would happen to the value of the dollar if China and oil-producing nations all shifted out of dollar-denominated assets at the same time? What would be the consequence for the U.S. economy?