Critical Thinking: Saudi Arabian Riyal and the U.S. Dollar (110 Points)

While Saudi Arabia seeks to diversify its economy, the Saudi economy is dominated by the petroleum sector. In addition, the Saudi Arabian Riyal (SAR) is pegged to the U.S. Dollar.

In a critical essay, discuss the advantages and disadvantages of the pegged exchange rate. Indicate the main considerations Saudi Arabia faces from a currency perspective (e.g., currency values, interest rates, inflation, and trade issues) that ensue given two scenarios:

The first scenario is a dramatically declining world oil price.

The second scenario is a dramatically increasing world oil price.

Directions:

Your essay is required to be four to five pages in length, which does not include the title page and reference pages, which are never a part of the content minimum requirements.

Support your submission with course material concepts, principles, and theories from the textbook and at least three scholarly, peer-reviewed journal articles. follow APA style guidelines.

Answer preview

Some countries peg or fix their currencies’ value at a specific exchange rate of another country. A dollar peg is when another country agrees to have a fixed exchange rate to the United States dollar. About sixty-six countries use the U.S. dollar as their national currency or have pegged it to their national currency. The United States dollar is well known currency because it was referred to as the world’s reserve currency, a name it was given by leaders worldwide in 1944 during the Bretton Woods Agreement. The second most pegged currency is the U.K. euro, where about twenty-five countries have pegged their currencies. Additionally, about nineteen countries under the Eurozone use the euro as their national currency.

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