Fluctuating exchange rates can really change how a country’s economy works. Here’s how it happens:
Costs of Exports and Imports: When a country's money becomes weaker, it makes their products cheaper to sell abroad (exports) and makes products from other countries (imports) more expensive. This can help their trade balance. For example, if the U.S. dollar loses value by 10%, the country might sell $20 billion more in exports.
Effects on Inflation: When a country’s money is stronger, it can lower the prices of things imported from other places. This helps keep inflation more stable. For instance, if a country’s currency goes up in value by 1%, it can reduce their inflation rates by around 0.3%.
Investment Changes: Big swings in currency values can scare away foreign investment. A 2018 report from the IMF showed that there was a 20% drop in foreign direct investment (FDI) during times of major currency changes.
Fluctuating exchange rates can really change how a country’s economy works. Here’s how it happens:
Costs of Exports and Imports: When a country's money becomes weaker, it makes their products cheaper to sell abroad (exports) and makes products from other countries (imports) more expensive. This can help their trade balance. For example, if the U.S. dollar loses value by 10%, the country might sell $20 billion more in exports.
Effects on Inflation: When a country’s money is stronger, it can lower the prices of things imported from other places. This helps keep inflation more stable. For instance, if a country’s currency goes up in value by 1%, it can reduce their inflation rates by around 0.3%.
Investment Changes: Big swings in currency values can scare away foreign investment. A 2018 report from the IMF showed that there was a 20% drop in foreign direct investment (FDI) during times of major currency changes.