How Currency Depreciation Affects Exports and Imports

Each country or group of countries (such as the European Union) has a currency that, due to various factors, has a value that can constantly change or stay stable for a specified time. This phenomenon has very important consequences in commercial markets, since the export and import of products is not exempt from the aforementioned factor.

The fluctuation in the value of a specific currency inevitably causes prices to rise or fall. Each monetary authority of each country in the world has policies adhering to cases such as the value of its currencies. We will talk in this article about trade ups and downs and how this affects the export and import of products internationally.

How does it affect the value of currencies?

The first phenomenon that occurs when the value of a currency fluctuates is the decrease or increase in the price of products. If the prices of a product fall in a country as a result of the devaluation, as a consequence, exports increase.

This occurs mainly because any buyer is in search of the best prices on the market; For this reason, they look for a way to get a greater number of clients and invest in the one that suits them best.

The rulers of a country can be a factor that determines the export value of a product, the decreases or increases are their decision in broad strokes, clearly based on studies made to determine the best way to sell the product in question.

container export port

In terms of an imbalance in a trade balance, the internal market, by losing purchasing power compared to the exterior, creates a price increase, leaving as a result the phenomenon of inflation.

Currency exchanges have been used as instruments of market regulation. Thanks to the globalization that the world is undergoing, an inevitable reduction of tariffs is taking place, taxing the creation of free trade agreements between countries and, in addition, the entry of products.

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How do I know in which country it is worth exporting or importing?

To internalize and understand which country can be a place with a positive impact on imports and exports, we can start with the indicator of purchasing power parity. This is a concept that, basically, reliably reflects whether a currency is in an overvalued status or, on the other hand, undervalued. This is done easily by comparing the prices of the same product in more than one country.

Some nations tend to join the devaluation of a currency so that it weakens and, consequently, gains a certain kind of competitiveness in the international market, due to its prices. This boat is usually ridden when an economy is in a state of stalling or backsliding.

When one currency is appreciated, it makes a profit over the others. Any buyer will have to pay a high rate to get items in the strengthened currency. This indicator refers to an economy it does not have a deep dependence on trade.

dollar bill america

The economy is more a question of demand and supply, since, until now, no country is considered self-sufficient, since each one has a surplus of resources but, on the other hand, a failure or insufficiency of the others. This factor led to the creation of a market for goods and services using the foreign market as a medium.

Currently the currency that functions as a world reference is undoubtedly the US dollar. It is almost like any commodity in the world: if the dollar is scarce, its value inevitably increases, and the same in the opposite way.

Concluding the topic

The used tendency for a nation’s money to appreciate or depreciate, affecting its value, also has a direct effect on imports and exports throughout the world. The fluctuation of the currency will make a product more expensive or cheaper in the foreign market. A strong currency makes trade with other countries diminish due to the issue of competitiveness.

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Buyers are always aware of the best prices in the market, creating a phenomenon that affects weaker currencies and helps them have a greater impact. We hope this article has been helpful.

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