Question

What you can make if your local currency goes up or down in international market area?

Answer 1

A fluctuating domestic currency in the international market area will have an impact on the prices of goods and services and also the balance of trade. If the local currency depreciates then this will mean that domestic goods will seem cheaper to those abroad. This will increase exports at home and imports will seem more expensive at home. As the domestic currency depreciates thus the balance of trade will improve.Now if the domestic currency appreciates then this will mean that domestic goods seem more expensive to foreigners as there will be stronger foreign currencies. This will mean that the balance of trade at home will worsen as people import more as foreign goods now seem cheaper as the domestic currency appreciates. A rising currency means a deteriorating balance of trade and a falling currency means an improving balance of trade.