This post is going to discuss how the price of the United States dollars affect the stock global market. The United States dollar is a major player in the global stock market and that is why any changes in the value of the U.S. dollar affects the global stock market either positive or negative. Stocks are generally valued in U.S. dollars and this is why the dollar is the most important currency in the world.
Here, we will also provide answers to several questions relating to the global stock market that has been asked by people online. Some of the questions are;
How does the global stock market work?
What are the major global stock markets?
Is the stock market a global thing?
What is Stock Global Market?
The Stock Global Market is the several markets and exchanges that are existing worldwide. We have different kinds of stock market that makes up the stock global market, such as the New York Stock Exchange, Stock Exchange of Hong Kong, the Shanghai Stock Exchange, Euronext of Europe, etc.
How does the global stock market work?
The stock market allows sellers and buyers to enter into price negotiations and make trades. Companies and businesses list shares of their stock, this is done through a process known as ‘initial public offer’. These companies do this because they want to raise money to grow their business, these goals are achieved when investors purchase their shares.
What are the major global stock markets?
Without any doubt, the New York Stock Exchange (NYSE), is the largest stock exchange market in the world. It has a mouthwatering equity market capitalization of around 25.9 trillion United States dollars. This is seconded by NASDAG, United States, with an equity market capitalization of around 22.1 trillion U.S. dollars.
The third major stock market is the Shanghai Stock Exchange, China, with an equity market capitalization of 7.6 trillion U.S. dollars.
Hong Kong Stock Exchange follows as number four with equity market capitalization of around 6.8 trillion U. S. dollars.
Is the stock market a global thing?
The stock market is almost a global thing because presently there are 60 stock exchanges globally. This consist of 16 exchanges with or more than $1 trillion market capitalization. These 16 exchanges account for 87$ of global market capitalization.
Effect of Dollar Price on Stock Global Market
Any changes in the rate of the U.S. dollar affects the global stock exchange directly whether positive or negative. When the U.S. dollar falls, people’s stock portfolio rises, this means that the global stock market and the U.S. dollar have an inverse relationship.
Just as the stock market rises when the dollar falls, the stock market also falls when the dollar rises. Commodities are priced in dollars, this means that when the U.S. dollars goes down, the prices of commodities go up, but when the U.S. dollar goes up, the prices of commodities go down.
However, these conditions does not favor the American stock exchange that it favors other countries’ stock exchange.
A weak dollar means that the prices of goods exported from the United States are going to be cheaper. A weak dollar can make the cost of some commodities and cost of travel to appreciate.
The summary of this is that a strong dollar is only good for people who import to the United States, but it is not good for exporters because it make goods exported to foreign countries to be more expensive.
Stocks of companies relying on commodities usually gain a direct benefit when the dollar falls. As a typical example, the exchange rate between dollar to naira black market today affects the commodity prices in Nigeria.
There is always a relative increase in foreign currencies when a dollar falls, this is because wealthy individuals outside the United States always see that period as an opportunity to get more dollars for heir own currency by buying more shares in the U.S. stock market during this period. Once the dollar starts to rise, they can sell off those shares and get the U.S. dollars then convert them back to their currency.
This is one sure way that people make higher returns by investing in a fallen dollar instead of investing in their own currency.
Key Features of the United States Dollar
- The United States dollar is the bedrock of the world economy and the base currency for global finance and trade.
- The U.S, dollars depends on the outlook and economic activity of the United States to maintain its value.
- The dollar’s value on the global market is also influenced by geopolitical risk and market psychology.
Factors that affects the Dollar Value
Read through two of the major factors that affect the value of the United States dollar.
- Demand and supply factors: when products and services are being exported by the United States, a demand for dollars is created globally. This is because customers will need to convert their currencies to dollars so as to pay for the goods or services. This is just one of the ways how the United States creates more demand for dollars and this increases the pressure on the supply of dollars. Automatically, this increases the value of the dollar.
- Sentiment and Market Psychology of Dollar Value: if the U.S. economy gets weak and causing a slowing down of consumption and increasing unemployment. During this time, the U.S. may be faced with the possibility of a sell-off, they may return cash from the sales of stocks and bonds so as to return to their local currency. The dollar will be grossly affected when foreign investors buy back their local currency.
