Investors embraced the perceived safety of the American dollar as the financial crisis shook the world in 2008. However, since March 2009, as stock markets rebounded and investors again rolled the dice in riskier markets, the dollar has suffered, raising questions about whether its status as a go-to currency for trade and investment would fade in the coming years. As budget deficits reached an estimated $1.6 trillion for 2009 and the US government printed money to finance its financial rescue programs, other countries and investors started to get nervous. China, which holds the most dollar reserves, raised concerns about rising American debt, and some of its top officials floated proposals that would replace the dollar as the world's reserve currency. Global investors began putting more of their money into Euros. And in October, rumours surfaced that the oil-producing countries would stop pricing oil in dollars, though that speculation was quickly batted down by governments in the Middle East and Russia.

1. Analyze the effects of a falling dollar on the US economy? (10 marks)
2. Discuss how falls in the value of the US dollar will affect Kenyan businesses that trade with the European Union. (10 marks) NOTE: ANSWER AS ONE QUESTION