Currency fluctuations are responsible for economic instability and economic uncertainty which ultimately affect international trade and capital flows.
When an economy confronts the situation of weaker currency, it alarms the problem of deflation and high prices, delayed investments and other bigger risks.
Sluggish economic growth, high rates of Inflation, chronic budget deficits and higher levels of imports are the difficulties shared by the weaker currencies.
But surprisingly even in this situation, Export sector encourages this situation because weaker currency results into stronger exports. Let us know how this takes place!
Why stronger exports in a weak currency situation?
- For example:
- 1$ is equal to Rs. 50
- -Suddenly the value of rupees depreciates and Rs. 55 per Dollar.
- -As an exporter of bags you used to export a bag for $10 and now you can export it at $9.09 which is less than the competitor’s price.
- -This will increase the demand of bags and more bags can be exported.
Due to devaluation of Indian rupees, the Indian exports are uplifted and the exporters are profited.
But not all the sectors enjoy the same situation, many confront a loss stricken situation as well.
- In a weak currency situation, exports of a country gain market share as its goods are less expensive comparatively to the goods priced in stronger currencies.
- Increase in sales boosts economic growth, therefore providing opportunities for job employment.
- Export accelerates during this period and is beneficial for the countries whose exports are more than imports.
- It increases profits for the companies practicing business in foreign markets.
- Export dependent nations may encourage a weak currency situation because of the increase in output of the manufacturing companies that finally results into increase in revenue.
- Though devaluation in currency brings more inconvenience to an economy, we still have managed to delve the fact that it has direct impact on Imports and Exports.
- So basically devaluation gives an advantage to foreign trades to upgrade their revenue generation as long as the period of currency devaluation lasts.
Currency fluctuation has different impacts on different sectors where some are benefited where as some are victimized. But frequent currency fluctuation may create severe economic crisis in developing countries due to its incapability to cope up with on-going economic instability and uncertainty.
Basically a deliberate weaker currency is not favourable for any economy except the stated fact that export oriented countries can do the best for its well-being during this time period.
When considered international trade, imports are discouraged and exports are boosted. All the exporters must take advantage of this situation and develop active strategies accordingly to outshine in this profitable period.
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