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Importers suffer. Even as they benefit from selling overseas, domestic manufacturers that need raw materials from foreign countries incur higher costs. European manufacturers, such as Mercedes, lose profit on autos made there and sold here. They have to eat the expenses or pass them on to customers.

And that possibility underscores one of the big risks with a weak dollar: rising prices. Though exports have increased, the nation brings in many more goods than it ships out. A large increase in prices would lead to higher living expenses here, which could cause further turmoil in the economy.

In a worst case, foreigners would lose confidence in the dollar altogether. Countries such as China that have amassed large reserves of dollars have parked them in U.S. bonds because they're considered among the safest investments.

If those countries lost faith, though, they would sell their holdings and, because of the way the market works, interest rates would skyrocket.

The nation likely would go into recession.

That's why the Chinese official's comment caused worry this week. "We will favor stronger currencies over weaker ones and will readjust accordingly," Xu Jian of the country's central bank said. China later modified the statement and alleviated some worry.

The big picture

Figuring out all the effects of the dollar's slide is complicated by the realities of the global economy.

BMW, for instance, is a German automaker, but it has a sprawling factory in South Carolina. Its expenses and sales there are in dollars, so euro-dollar exchange rates aren't an issue. IBM, a U.S. blue chip, benefits from the weak dollar because revenue earned overseas appears higher when it converts currencies.

But understanding exchange rates is important to the economic picture. Policymakers must balance many, and sometimes conflicting, factors as they guide the nation's economy. As the dollar has declined, energy prices have risen. The credit markets have stumbled.

Investors want the Federal Reserve to lower interest rates to help fix the challenges in lending. But doing so would exacerbate the dollar's slide, which could spur inflation.

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