What is the relationship between exchange rate and international trade?
The main relationship between exchange rate and international trade is the way in which fluctuations in exchange rates affect import and export value. In terms of exchange rate and international trade, the weak currency can affect the type of goods and the amount of goods that one country can buy. Such disparity of the exchange rate and international trade can also lead to a state where there is a business imbalance between two business partners.
The analysis of the relationship between exchange rate and international trade can be carried out at national or government level, or can be seen from an individual perspective. At the national level, the country with a weaker currency is at a disadvantage when trading with a much stronger currency. This is due to the fact that the Earth with a weaker currency will not be able to attach the same value and satisfaction of the goods that it is able to buy on the basis of exchange rate.
When the country exports the product, it can find outthat the weaker currency will be in advantage. The sale of its goods on the international market will make more money in terms of local currency, because the local currency is weaker than foreign. It also works for individuals. For example, if an entrepreneur's currency is sold for a $ 100 per dollar, unlike the previous 50 to the dollar, it means that it can sell goods for the usual amount of the dollar and earn twice as much money as to the local currency based on the exchange rate change.
The problem would be that if an entrepreneur tries to import products, he would have to spend twice as much as to buy a stronger foreign currency to facilitate business. This means that there is a business imbalance between the two countries in which a country has a stronger change. The imbalance is caused by a disproportionate change of exchange rates of currencies of both countries.
From an economic point of view, any form of depreciation or recognition that occurs in the exchange rate of the country directly affects the trade balance between this country and its trade balance. Depending on theWhether the exchange rate depreciates or appreciates, the trade balance may change to harm or to the country's profit in connection with trading in other countries. Such factors also affect the competitiveness of the country in international trade. Some countries effectively depreciate their currency to improve the benefits of trading in countries that have stronger currencies. Devaluation increases the value of exports by making them cheaper and at the same time importing.