Essay on The Impact of Exchange Rate on International Trade

Submitted By DamonHuang2013
Words: 1771
Pages: 8

While the trade between countries is still dominated by self-interest, but the import and export trade is the inevitable result of international economic integration. There are many factors affecting the conduct of foreign trade, such as commodity prices, exchange rate policy and other national policy. In this paper, the impact of exchange rate on import and export trade was analyzed, and then describes the response from the three aspects of changes in exchange rates in general response: Select diversification of import sources, select a reasonable settlement currency, full use of international financial instruments. [Keywords:] exchange rate system, import and export trade 1, the exchange rate impact on the import and export trade Exchange rate affect the import and export trade as a major factor. Economics, common sense tells us that the currency appreciation, mean that other country's currency devaluation, export trade during a time when the same goods in the importing country need to show more of the national currency, so the importing country may turn to seek other countries of goods is not conducive to their export markets. The currency devaluation, which means that his country's currency appreciation, imports of goods also need more currency is not conducive to his country's exports. Changes in exchange rates will affect the import and export trade and trade balance, mainly in the following two aspects: 1. Exchange rate changes caused by variations in income affect the import and export trade Changes in exchange rates is the most direct expression of appreciation or depreciation of the currency. Currency appreciation would result in lower prices of imported goods, while export prices, while not conducive to exports, but it can improve the international balance of payments, currency devaluation can achieve the opposite effect. But in fact, the devaluation of the currency impact on revenue mainly from two aspects: the devaluation will cause prices of imported goods, export prices fell, making the deteriorating terms of trade. In the meantime, at the same nominal income level, consumers can only buy fewer goods, which is leading to a decline in real incomes, which will inevitably lead to a decline in spending in the country, thereby improving the trade balance. In addition, if the existence of underutilized resources, you devaluation can stimulate domestic and foreign residents on their own in the kinds of products. According to the principle of Keynesian economics, the public economic costs several times through the Keynesian multiplier and raise national income, national income will increase domestic spending increase, reaching a virtuous cycle results. 2. Exchange rate changes to price transmission, affecting import and export trade As mentioned earlier, the most direct reflection of changes in exchange rates is the relative price of the currency rise or fall, which first of all reflected in the import and export trade. However, financial globalization, international markets, price movements will eventually affect the general price of thedomestic market. Therefore, changes in the exchange rate will cause the domestic general price level, thus affecting the volume of trade importers and exporters and the country's trade balance, which reflects the following two aspects: first, the currency appreciation is expressed in local currency prices of imported goods, such as the raw materials or semi-finished products, and then pass through price affect the ultimate decline in commodity costs and prices down. Second, the exchange rate changes would make the trade balance changes, such as currency depreciation will arise after the balance of trade surplus, and then makes the foreign exchange reserves increased, while the increase in foreign exchange reserves, but also allowed the central bank must buy foreign currency in the…