The prices of the U.S. goods from the Japanese perspective are too high because of the strong dollar. The Single European Act was expected to promote more cross- border trade within Europe. Yet, there is some concern that firms exporting to Europe would lose business. European businesses could be protected from competition by non-European firms if trade barriers were imposed on any exports to Europe. Explain why events in Japan can influence financial markets in the United States.
Japan is a major investor in the U.S. financial markets.
Consequently, the U.S. financial markets now rely on Japanese investment. For example, Japanese investors account for between 15 and 30 percent of the purchases of U.S. Treasury bonds. If the Japanese investors discontinued their investment, U.S. interest rates would be higher. Explain how the existence of the euro could affect U.S. international trade. The euro can increase trade within Europe because it eliminates the need for several European countries to exchange currencies when trading with each other.