Generally speaking, the main thing an average consumer needs to know about the value of the dollar is that when the dollar loses value compared to other currencies, American products are cheaper for foreigners to buy. When the dollar gets stronger, on the other hand, those foreign products or imports are cheaper for Americans to buy.
But you do not have to be a big international investment banker to participate in the currency markets. If you are planning a trip to Europe two years from now, for example, and you expect that the dollar is losing ground compared to the value of the Euro, you might want to convert some of your American dollars into Euro now. Stash those Euro notes and if your prediction is right then you might get more buying power while on your vacation two years later.
For example, if the Euro is worth $1.50 that means that something worth one Euro will cost $1.50, while something costing 1,000 Euros will cost $1,500. So if you notice that the Euro is worth $1.50 but you believe the dollar is going to continue losing value, you could go to a bank and convert $1,500 into Euros. The teller will give you 1,000 Euros. But if the value of the dollar plummets in relation to the Euro and it starts costing $2 to buy one Euro, then you just made a 50 cent profit. You can take your Euros back to the bank and convert them and you’ll get US $2,000 for your 1,000 Euros – a profit of $500.
Some people do that kind of thing if they are planning a trip to a foreign country and expect the currency values to change significantly before they set sail on their trip. When the dollar lost value during the 2008 credit crisis, for instance, Canadian tourists flooded the USA to take advantage of cheaper shopping and vacations. That’s because the Canadian dollar – which normally buys less than an American dollar – was suddenly worth about $1.50. So those Canadians were basically getting a 50 cent discount on everything they bought in the USA. Similarly, lots of Americans like to go to Mexico – where US dollars are usually worth more – because they can spend the same amount of money and get a much more luxurious vacation.
So keep tabs on currency values and if you notice a huge discrepancy that makes the dollar strong against the other nation’s currency, you might want to consider visiting that foreign land on your next vacation. Or if the dollar is really weak you might want to invest in stocks or bonds in a country that has a stronger currency and economy in order to get a better return on your investment.