Dollars are everywhere. U.S. dollars, we mean. It’s the #1 currency of the world. It’s very common that other currencies are quoted in terms of USD.
So...how much is a dollar worth? If everyone else’s currencies are being compared to the U.S.’s, what do we compare the USD to?
Well, we just compare the USD to...everyone else. The U.S. Dollar Index (USDX) measures the value of the dollar relative to a basket of foreign dollars. This index is trademarked and published by ICE, a.k.a. Intercontinental Exchange, Inc.
The basket is a weighted geometric mean relative to the U.S.’s biggest trading partners: the euro, Japanese yen, pound sterling, Canadian dollar, Swedish krona, and Swiss franc. Since the Euro covers the eurozone, its weight in the basket is over 57%.
That’s how economists know if the U.S. dollar has gained value (the index goes up) or lost value (the index goes down). USDX took the helm when the Bretton Woods system collapsed. The Bretton Woods system was the world’s attempt to manage the exchange rate between the world’s leading currencies when the dollar once got too strong...but it just didn’t work out. No hard feelings, guys.
Related or Semi-related Video
Finance: What are Government Bonds?52 Views
finance a la shmoop. what are government bonds?
now we're gonna narrow this question a bit and declare these bonds to be US [hands shape the question]
government bonds. our answer would be a tad different if we were discussing
bonds backed by North Korea Nigeria or Egypt so US government bonds come in a
few flavours. generally speaking they range in duration that is how long it
takes for them to mature and the principal get paid off. short-term US
government paper it's a fancy term for a bond ,refers to things that come due in a
year or less. that's short-term. year or less. and then there are Treasury bills
which come in a variety of durations and our price like this note how different
these look versus just you know buying a bond .but when you buy a bond it has a [chart shows prices]
face amount of say a thousand bucks for what is called its par value. that piece
of paper might agree that clown shoes incorporated which is where most
congressmen get their Footwear of course, will pay 30 bucks twice a year to the
holder for 10 years, and then pay back the original thousand bucks invested
it's like a normal vanilla bond, the interest rate here in this case is 6%
per year, but many US government notes are sold at auction which means they
sell at a discount to their par value. well regardless of how they're sold US [auction with a clown in attendance]
government bonds are backed by what is generally perceived in the world as the
most certain or secure financial backing. even more powerful than Google .if sorry
Larry and Sergey we're just keeping it real. the bonds are backed specifically
by the US government's right to tax its citizens. and oh they tax us. do they ever.
so now you can stop wondering about that bottomless hole a third or more of every
paycheck vanishes into. [portion of paycheck flies down dark hole in the ground]
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