In "What a Drag!" S.C. Gwynne examines the currency crisis that began in Thailand, spread throughout Asia, reverberated in Russia--and resulted in dramatic consequences for Americans. But how, exactly, are world currencies connected?

The U.S. dollar is a standard measure in world economics; the value of a nation's currency against the dollar--its exchange rate --generally reflects the state of that nation's economic health. In times of prosperity, a country's currency will gain in value against the U.S. dollar; in crises, foreign currencies lose value against the dollar. In the past year, the U.S. economy has remained robust while the economies of many Asian countries, Mexico and Canada have faltered. As a result, the value of these nations' currencies has dropped against the dollar. Is this good or bad for American businesses? For American consumers? For the U.S. economy as a whole? For the global economy? Study the data presented in the table below and answer the questions that follow.

The Cost of Exports

1. If a can of Coke cost $1.00 in the U.S. in August 1997, how much did it cost in Japan (in yen)? In Canada? How much did the same item cost a year later in Japan? In Canada? Do you guess that Coke sales have risen, fallen or stayed the same in Japan and Canada over this period? Why?

2. If a Compaq computer manufactured in Texas cost $2000 in the U.S. in September 1997, how much did it cost in Canada? In Thailand? How much did it cost a year later in Canada? In Thailand? What will the consequences be for the American computer industry if foreign currencies continue to fall against the dollar?

3. How do the two cases above illustrate the idea that in today's world economy, foreign economic troubles can "spread" to the stronger American economy?

The Cost of Imports

Did a Toyota manufactured in Japan and sold in the U.S. cost more in August 1997 or August 1998? Why? Is the fall of the yen's value a plus or minus for American consumers? Is the trend in the yen's value good news or bad news for U.S. auto makers?

A Global Perspective

Can a nation's currency be too strong? Why might a country wish to see the value of its currency fall in the international market?

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