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Discuss why it is often asserted that exporters suffer when their home currencies appreciate in real...

Discuss why it is often asserted that exporters suffer when their home currencies appreciate in real terms against foreign currencies and prosper when their home currencies depreciate in real terms

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Answer #1

Let's take an example. US export Harley Davidson bikes to India and the exchange rate between the Dollar and Rupee is $1 = 100 Rs.

A bike cost $2000. In the Indian currency it will cost $200 x 100 = Rs. 200,000. At this price the demand for such bikes is 100 in the Indian market.

If the exchange rate appreciated where the US Dollar is now 110 Rs. the price of the bike will be 220,000. and if the dollar depreciated to 80 RS then the price of the bike will be 160,000. If the price of the goods is less, it will be more competitive and demand will be high i.e. the exports will be high thus depreciation of the Dollar helps the exports and if the price of the goods increases then the demand for the good will fall and thus the exports will fall.

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