Five problems with floating rate exchange regimes
Euro's 25% fall against the US dollar highlights dangers of floating currencies
The decline in the US dollar price of the euro by 25% from $1.38 to $1.05 has led to a dramatic change in the cost and profit relationships between the production of goods in the eurozone and the production of similar goods in the US. As a hypothetical example consider Deutsche Engineering, which has a plant in Stuttgart
that exports to the US and a similar plant in Mobile, Alabama, which also serves the US market. When the euro traded at $1.38, the profit-to-sales ratio
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