The Impact of International Economics
While most investors are concerned with the state of affairs in the U.S., it is also important to keep an eye on what is going on around the world. More and more it seems that the global economy is taking shape with circumstances in many parts of the world having a large impact on things at home. Moreover, many money managers suggest that a portion of an individual's investments should be made overseas in order to diversify against a downturn in the U.S.
From an economic perspective, currency valuations are probably the most important factor to be concerned about. Depending on the state of various economies, the relative value of a dollar (or a yen, Euro, etc.) can fluctuate compared to other currencies.
The other major concern for U.S. investors is the amount of goods and services the country exports to other countries. The U.S. is a major exporter of products to countries around the globe, so U.S. companies and the U.S. economy are often dependent upon foreigners being able to purchase American goods and services. When other economies struggle, decreasing the disposable incomes and capital expenditures of those countries, the effects are often felt at home. In some cases, such as the Japanese collapse during the 1990s, the U.S. government can step in and boost up the foreign economy with investments or credit.
The European Central Bank is analogous to the Federal Reserve Bank of the United States. Therefore, the ECB attempts to maintain price stability for the currency of the European Union, the Euro. The central banks of the member nations of the EU are all part of the larger ECB system. Like the Fed, the ECB influences interest rates by controlling the rate at which member banks may borrow from the ECB.