1. What will happen to the value of the U.S. dollar if oil producers decide to invest most of their earnings from oil sales in domestic infrastructure projects?
2. What factors determine the relative attractiveness of dollar-, euro-, and yen-denominated assets to oil producers flush with petrodollars? What might lead them to direct more funds toward nondollar-denominated assets?
3. What will happen to the value of the U.S. dollar if OPEC members decide to invest more of their petrodollars towards nondollar assets, such as euro-denominated stocks and bonds?
4. In addition to oil producers, China is also accumulating a large stock of dollars, currently estimated to total $1,000 billion by the end of 2006 (see opening case for details). What would happen to the value of the dollar if China and oil-producing nations all shifted out of dollar denominated assets at the same time? What would be the consequence for the United States economy?

In 2004, 2005, and 2006, global oil prices surged, reaching more than $60 a barrel, a 170 percent increase in real terms since 2001. The rise in oil prices was due to a combination of greater than expected demand for oil, particularly from rapidly developing giants such as China and India, tight supplies, and perceived geopolitical risks in the Middle East, the world’s largest oil-producing region. With these conditions predicted to persist for some time, oil prices could remain high for the foreseeable future.