Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, March 8, 1995                   TAG: 9503080105
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE:                                 LENGTH: Medium

WHAT MAKES DOLLAR'S VALUE DROP?

It takes more dollars than before to buy Japanese yen, German marks, French francs, British pounds and other important currencies. It also means that it takes more dollars to purchase the products and services produced by America's trading partners.

What's making the dollar lose value?

The dollar has gradually eroded against key currencies such as the yen and mark for years, but the trend has accelerated in the past week.

One critical long-range influence is America's chronic trade deficit - the gap between imports and exports. Americans are spending $150 billion more a year abroad than they're taking in, which has caused a buildup in the supply of dollars held by foreigners. When foreigners sell these dollars for their own currencies, it creates a dollar glut on the global foreign exchange market, reducing the dollar's value.

Among short-term explanations, the crisis in Mexico and a slowdown in the U.S. economy are considered key reasons why the dollar has plummeted. Mexico's malaise likely means far fewer U.S. exports to that country, which could worsen America's trade deficit.

If everyone's selling dollars, what are they buying?

The currency of choice, at least for the time being, is the German mark, a reflection of that country's powerful economy and likelihood of steady or rising interest rates in Germany.

When will the dollar stop falling?

Many currency traders say they see nothing ahead that would change their forecast that the dollar is headed lower. But where it will stabilize is unclear.

Why doesn't the United States take action to stop the dollar from falling?

The government did act last week, along with central bankers of other countries, to halt the dollar drop by buying an estimated $5 billion worth of the currency. The failure of that effort reflected an overwhelming determination to sell dollars in the market, where volumes can exceed $1 trillion a day. Another possible remedy is higher interest rates, which would attract foreign investors to dollars. But rising rates could hurt the U.S. economy and even push it into a recession.

Who's feeling the impact?

So far, the consequences have been felt in other financial markets, creating anxiety among investors in U.S. stocks and bonds that fall in value as the dollar goes down.

How will the dollar's drop affect my pocketbook?

Economists say it could result in a slightly higher inflation rate this year, reflecting the rising cost of many foreign products. The price of imported oil could rise.

Will anything nice come out of the dollar's drop?

Over time, it makes American goods more affordable abroad, which could strengthen U.S. exports and create jobs. But many economists believe the negatives and uncertainties created by the dollar's weakness outweigh the benefits.