How Exchange Rate Influence A Country’s Import And Export
International Journal of Scientific & Engineering Research, Volume 7, Issue 5, May-2016ISSN 2229-5518131How Exchange Rate Influence a Country’s Importand ExportKhaled AlotaibiAbstract- Businesspersons and governments all over the globe are very serious about the severe results of currency appreciation anddepreciation on different things such as imports, exports, domestic products, etc. Academic researchers conducted many researches in order to explorethe impact of currency fluctuations on the import and export of the country as well. Many researchers concluded that G-7 countries exports and importstook the effect due to currency fluctuations during the period of 1982-1997. Depreciation in exchange rate increases the domestic currency value anddecreases the value of our own currency as well. If our own country currency rate increases due to foreign exchange rate declines then the domesticcountry can import the goods at cheap prices. In contrast if the home country currency decreases due to an increase in exchange rate then the importsof the home country will decreases due to increasing in other country prices as well. If the domestic currency appreciates due to declining in exchangerate the domestic country exports will bring the high foreign exchange for the country and vice versa. When some countries currency increases ordecreases, it brings the changes in the whole business of the country at very much extent (Kandil, Berument, & Dincer, 2007)).IJSER—————————— s due to an increase in exchange rate thenBusinesspersons and governments allthe imports of the home country will decreases due toover the globe are very serious about the severeincreasing in other country prices as well. If theresults of currency appreciation and depreciation ondomestic currency appreciates due to declining indifferent things such as imports, exports, domesticexchange rate the domestic country exports will bringproducts, etc.Academic researchers conductedthe high foreign exchange for the country and vicemany researches in order to explore the impact ofversa. When some countries currency increases orcurrency fluctuations on the import and export of thedecreases, it brings the changes in the wholecountry as well. Many researchers concluded that G-7business of the country at very much extent (Kandil,countries exports and imports took the effect due toBerument, & Dincer, 2007)).currency fluctuations during the period of 1982-1997.It is an ongoing debate especially inDepreciation in exchange rate increases the domesticdeveloping countries. The fluctuations level may takecurrency value and decreases the value of our ownthe effect of country internal and external shocks incurrency as well.financial of other trading partners. It has beenIf our own country currency rate increasesdiscussed that due to globalization evolution the onedue to foreign exchange rate declines then thecountry financial brings the change in the otherdomestic country can import the goods at cheapfinancial structure also. The reason is that theprices. In contrast if the home country currencycountries are interlinked now days. They haveIJSER 2016http://www.ijser.org
International Journal of Scientific & Engineering Research, Volume 7, Issue 5, May-2016ISSN 2229-5518132become a global partner in trade. The imports andexchange rates into account. In the free marketexports are also because the currency of oneImports and exports determine and affect theimporting and other exporting country was exchangeexchange rate though governments and financialwhen transaction took place.institutions in their audacity feel they control it. Inthe same way that supply and demand forproducts shift to change the prices of thoseproducts, the constant shifts in the supply andExchange rate is a rate at which currenciesare exchanged between countries. It’s also known asdemand for foreign currency result in changingthe value of one countries’ currency in terms of otherprices of currency. As a result, the “price” ofcountries’ currency. For example, an interbankmoney changes as demand for foreign currenciesexchange rate of 91 Japanese yen (JPY, ) to thechanges. This “price” of foreign currency, inUnited State dollar (US ) means that 91 will beterms of U.S. currency, is known as the foreignexchanged for each US 1 or that US 1 will beexchange rate.IJSER exchanged for each 91.Effect of Exchange rate on Exports and Imports of aCountry:Exporting goods and Importing raw material:If the exchange rate falls, this changes the relativeprices of imports and exports. Exports will appear tobecome relatively cheaper in other currencies, and Exchange rates can be manipulated so that theydeviate from their natural equilibrium rate. Toimports will appear to be more expensive. Becausewe buy imports, they are included as part of the retailstimulate exports, rates would be held down, andto reduce inflationary pressure rates would beprice index, and so if the price of imports goes up, thiscould be inflationary.kept up. The Monetary Policy Committee (MPC)wThe effects on aggregate demand may compound thisiinflationary impact. Since exports are relativelylcheaper overseas, this should increase the demandlfor them. In addition the demand for imports shouldtfall. The combination of the two will have a positiveaimpact on aggregate demand because net exports iskone of the components of the AD function (AD eC I G (X-M) How much the demand increasesdepends on the price elasticity of demand for exports,IJSER 2016http://www.ijser.org
International Journal of Scientific & Engineering Research, Volume 7, Issue 5, May-2016ISSN 2229-5518133but the demand should certainly grow. Growth inaggregate demand could also be inflationary if theeconomy is close to its capacity. On the diagrambelow you can see the shift in aggregate demand(AD1 to AD2) pulling up the price level (demand-pullinflation).IJSERImpact of appreciation on business:It cannot be denied from the fact that economiestake the effect of fluctuations in the foreign exchangerate of a domestic country or its trading partners aswell. When economies of countries take the effect,this effect is diversify on almost all businesses of theImpact on importers of raw material:country. When countries exchange rate increases theExchange rate affects value of imports of a countryimport of that countries went toward decrement. If thedirectly, if a person is importing raw material from anyother country to make finished goods. If the exchangerate of the country is at a lower side then its importershave to pay high price of raw material purchasedcountries increases. If some countries exchange rateincreases the exports of those countries, decreasesand companies earn more against their export. If thebecause the value of their currency is low in the othercountry, and vice versacountries exchange rate decreases the import of thatexchange rate of that country decreases, the exportsof that country will also increases. What is the logicbehind this system? A great chain is working iates the people, of that country purchasingpower, increases, and they demand more luxuryIJSER 2016http://www.ijser.org
International Journal of Scientific & Engineering Research, Volume 7, Issue 5, May-2016ISSN 2229-5518134products due to which county overall business takesthat the businesses takes the effects and spread it inthe effect of it, and, imports increased.all over the country because businesses are linkedIf the domestic country currency depreciates, theindividuals of that country do not have much money,and inflation has increased due to which the prices ofthe domestic goods increased. Along with theincrement in prices ofthe domestic productsincreases because the imports have been stopped bythe businesspersons and the demand of domesticproducts also has been increased. Therefore, we cansay that the increases in currency rate results awith other institutions in order to run it smoothly.These businesses such as the textile mill is ,governments and other human capital these all areinterlinked due to which the change in one componentaffects the other partner. It might be possible that theeffect may be small or long. Therefore, the end it canbe said that the depreciation of the country at anylevel is bad for the country business persons,governments, economy and even very small segmentdecrease in the import of that country (Dausa, 2009)of population (Heim, 2009).IJSERWhen imports level went down the business,The one more important thing is also notable thatbecome worry because almost everywhere theimported products are necessary in order run theindustry of the domestic country. For example, if ourcountry imports the cotton from china and thecurrency rate has increased due to which our industrythat raw material is cotton will not continue itsbusinesses smoothly. On the other hand if thecurrency rate of our country will decrease the importsof our country will increases and our businesscommunity will run their businesses smoothly. If onecountry exchange rate increases the exports of thiscountry will go down because the imports have been,the currency depreciation may lead down theaggregate demand of that country. The supply sidechannels become more difficult when the currencydepreciation took place at very large level. All thefactors are affected because the currency of thecountry is the main source of exchange. In the end, itcan be concluded that depreciation of the countryincreases exports but along with that cost of ppreciation decreases the exports, and the cost ofproduction also decreases accordingly. The demandand supply channels finalize the exchange ratego down.results such as output and prices of the products.The prices of the raw material for products havebeen increased because in our own country demandfor that product has been decreased as well. OneEvaluation of the changes within the exchangerate on business:more thing that is too important and considerable isIJSER 2016http://www.ijser.org
International Journal of Scientific & Engineering Research, Volume 7, Issue 5, May-2016ISSN 2229-5518 135Elasticity. The impact of an appreciationimport raw materials. Business strategies anddepends upon the price elasticity of demandmovement entirely depends on the exchange rate of afor exports and imports.country. In addition to its direct effects on the globalThe impact of an appreciation depends ontrading and production structure, the ongoing processthe situation of the economy. If the economyof globalization may have important implications foris in a recession, then an appreciation willthe interaction of exchange rates and the overallcause a significant fall in aggregate demand,global economy.and will probably contribute to higherElaborating on the significance, theunemployment. However, if the economy isexchange rate expresses the national currency'sin a boom, then an appreciation will helpquotation in respect to foreign ones. For example, ifreduce inflationary pressures and limit theone US dollar is worth 10 000 Japanese Yen, then thegrowth rate. exchange rate of dollar is 10 000 Yen. If somethingIJSERIt also depends on economic growth in othercosts 30 000 Yen, it automatically costs 3 US dollarscountries.as a matter of accountancy. It also depends why the exchange rate isincreasing in value. If there is anThe global floating exchange rate systemappreciation because the economy isoperation forces the market demand and supply,becoming more competitive, then thedetermining the daily value of one currency againstappreciation will not be causing a loss ofanother. The system affect exchange rate oncompetitiveness. But, if there is anbusiness, tend to go up in value when a country isappreciation because of speculation orrunning a large trade surplus and when overseasweakness in other countries, then theinvestors regard the currency as a good one to buy.appreciation could cause a bigger loss ofIn determining the types of the exchange rate. It iscompetitivenesscustomary to distinguish nominal exchange ratesfrom real exchange rates. Nominal exchange ratesare established on currency financial markets called Evaluation of the changes within the"forex markets", which are similar to stock exchangeexchange rate on business:markets. Rates are usually established in continuousquotation, with newspaper reporting daily quotationThe exchange rate in a business plays an(as average or finishing quotation in the trade day onimportant role for the country, which export goods andIJSER 2016http://www.ijser.org
International Journal of Scientific & Engineering Research, Volume 7, Issue 5, May-2016ISSN 2229-5518136a specific market). Central bank may also fix theinfluence of the economy can have powerful effectsnominal exchange rate.on the macro economy affecting variables such as thedemand for exports and imports; real GDP growth,The regime includes when the exchange ratecan freely move, assuming any value that ting exchange rate" will be the name of currencyinstitutional regime. Equivalently, it is called "flexible"exchange rate as well. If the central bank timely andsignificantly intervenes on the currency market, a"managed floating exchange rate regime" takes place.The central bank intervention can have an explicittarget, for example in term of a band of currencyacceptable values.inflation, business profits and jobs. With mostvariables in economics, there are time lags involved.The impact of movements in currencies on theeconomy depends in part on whether the change inthe currency is short-term or long-term. Furtherelaboration would mean to identify the change in theexchange rate temporary or likely to persist for sometime? And how businesses and consumersrespond to exchange rate fluctuations. Meaning willthere be a large change in demand for exports andIJSERimports?In "freely" and "managed" floating regimes, aloss in currency value is conventionally called”depreciation", whereas an increase of currency'sinternational value will be called "appreciation". If thedollar rise from 10 000 yen to 12 000 yen, then it hasshown an appreciation of 20%. Symmetrically, theyen has undergone 8.3% depreciation. But centralbanks can also declare a fixed exchange rate, offeringto supply or buy any quantity of domestic or foreignIt is important to identify possible changes in therole of exchange rates in a more globalized economy.Analyses the link between exchange rates and prices,shows that there is a moderate decline in exchangerate pass-through for the euro area. Next, it turns tothe effect of exchange rate changes on trade flows. Inaddition, the overall impact of exchange rates on GDPand the potential role of valuation effects as atransmission channel in the case of the euro area.currencies at that rate. In this case, one talks of aIn Exchange rate the term, Appreciation makes"fixed exchange rate".exportsExchange rate on business directly effectsexpensiveandreducesthecompetitiveness of exporting firms. Depreciationon the global trading and production structure, themakes exports cheaper and the exporting firms will beongoing process of globalization may have importantimplications for the interaction of exchange rates andthe overall economy. Change in the exchange ratemorepositively impacted by it. Exchange rate devaluation(or depreciation) gives rise to inflationary pressures:imported good become more expensive both to theIJSER 2016http://www.ijser.org
International Journal of Scientific & Engineering Research, Volume 7, Issue 5, May-2016ISSN 2229-5518137direct consumer and to domestic producer using theminvestments, which determine the portfolio are realfor further processing. In reaction to inflation (actualreturn. As supply and demand for currencies change,and feared), the central bank can raise the interestthe values of those currencies change. When the U.S.rates, thus sending a recessionary impulse.dollar is strong, imports seem less expensive, leadingto increased demand for imported products and theCurrency crisis have a sweeping impact oncurrency needed to purchase them. In addition, whenincome distribution. The few rich are able toborrow (because they have collateral and thebanks trust them) will get richer and theinterest rates in another nation are higher than thosein the U.S., demand for the foreign currency rises, aspeople buy the currency in order to invest in the otherpeople purchasing imported goods facingnation’sinflation and reduction of real incomes.securities.Adecliningexchangerateobviously decreases the purchasing power of incomeSymmetrically, the central bank may use aand capital gains derived from any returns. Therefore,fixed exchange rate as a nominal anchor fora trade deficit develops as the result of a strongIJSERthe economy to keep inflation under control,compelling domestic producer to facedollar. The opposite effects result from a weak U.S.dollar. While importers prefer a strong dollar,tougher competition as soon as they decideexporters prefer a weak dollar.to increase prices or accept to payMoreover, the exchange rate influenceshigher wages. For a small economy, joininga monetary union makes the exchange rateother income factors such as interest rates, inflationand even capital gains from domestic securities.to fluctuate according to fundamentals andmarket pressures referring to a much largerWhile exchange rates are determined by numerouscomplex factors that often leave even the mostarea, erratically going in directions that areexperienced economists flummoxed, investors should(or are not) coherent with positivemacroeconomic developments. For statisticsstill have some understanding of how currency valuesand exchange rates play an important role in the ratepurposes, international comparisons ofof return on their investments. Therefore, the effectscurrent values converted to a commonof currency crises in other nations are not limited tocurrency are "distorted" by wide exchangethose nations -- they can affect our economy and ourrate fluctuationslives in important nces:occupies a portfolio that holds the bulk of itsIJSER 2016http://www.ijser.org
International Journal of Scientific & Engineering Research, Volume 7, Issue 5, May-2016ISSN 2229-5518Dausa, J. (2009). Exchange Rate Shocks onMalaysian Prices of Imports and Exports: An empiricalanalysis. Journal of Economic Cooperation andDevelopment , stract id 1144484McGowan, C. (2008). Evaluating the ImpactHeim, J. J. (2009). THE REAL EXCHANGERATE AND THE U.S. ECONOMY 20002008. Troy, New York: RensselaerPolytechnic Institute.of Foreign Exchange Rate Risk On TheCapital Budgeting For MultinationalFirms. International Business & EconomicsKandil, M., Berument, H., & Dincer, N. N.(2007)). The effects of exchange ratefluctuations on economic activity in Turkey.Journal of Asian Economics , 466–489.Research Journal, 7(8).SCHULMEISTER, S. (2000). Globalizationwithout global money: The double role of theLessard, D., & Lightstone, J. (1986, Julydollar as national currency and world1). Volatile Exchange Rates Can Putcurrency. Journal of Post KeynesianOperations at JSER2.rates-can-put-operations-at-riskMauro, F., Rueffer, R., & Bunda, I.(2008, September 8). The Changing Role ofthe Exchange Rate in a GlobalisedEconomy.Economics, 22(3).http://www.economicsonline.co.uk/Managingthe economy/Exchange rate htmlIJSER 2016http://www.ijser.org
International Journal of Scientific & Engineering Research, Volume 7, Issue 5, May-2016ISSN 2229-5518IJSERIJSER 2016http://www.ijser.org139 page
the impact of currency fluctuations on the import and export of the country as well. Many researchers concluded that G-7 countries exports and imports . exchange rate the domestic country exports will bring the high foreign exchange for the country and vice versa. When some countries currency increases or decreases, it brings the changes in .
Keywords: Exchange Rate Regimes Estimation, Exchange Rate Regimes Classification, Exchange Rate Regimes, Exchange Rate Policies, and Exchange Market Pressure. 1. Introduction In order to make a sound recommendation for a country exchange rate policy, it is valuable to evaluate how well its exchange rate policies have operated in the past.
Listing Exchange Exchange Exchange Exchange); Exchange Exchange listing Exchange Exchange listing. Exchange Exchange. Exchange ExchangeExchange Exchange .
Exchange Rate Systems (continued) In a fixed-exchange-rate system exchange rates are set at officially determined levels. The official rates are maintained by the commitment of nations' central banks to buy and sell their own currencies at the fixed exchange rate. Real Exchange Rate The real exchange rate is the number of
changes on the exchange rate. However, changes on exchange rate cause changes in the local interest rate while changes on the foreign interest rates do not cause changes in the local interest rate. In addition, changes on both the exchange rate and foreign interest rate jointly do cause changes on the local interest rate. Finally changes on
of foreign exchange revers will lead to much appreciation of local currency exchange rate. For example, Pan (2006) found foreign exchange reserves have significant influence on exchange rate, and Hoshikawa (2012 ) declare d a long -term relationship existing between foreign reserves and exchange rate .
exchange and which rate of exchange is unstable. Previous researchers established that fluctuations in exchange rate negatively influence productivity. Thus, this hypothesis is supported by the earlier discussions. H 1: Exchange rate fluctuations have negative effect on productivity.
exchange rate fluctuations and their volatility.2 Egert et al. analyzed the direct and indirect impact of exchange rate volatility via changes in exchange rate regimes on the export performance.3 Lourenco analyzed the global picture of exchange rate regimes of 33 advanced and emerging economics.4 Hussain et al. investigated
showed that the determinants factors of foreign exchange rate through foreign exchange reserve, export and import is capable of influencing which has an direct relationship and statistically significant to the foreign exchange rate. However, result shown insignificant relationship between lending interest rate and foreign exchange rate.
