The Impact ofThe Impact ofForeign Exchange RatesForeign Exchange Rates
By Paul D. Mixon
Exchange Rates Impact TradeExchange Rates Impact Trade
• When exchange rates change, the balance of trade can fluctuate.
• If the value of your currency goes up, then goods from other nations will be cheaper.
ExampleExample
For instance, let’s say $1= 10 pesos. If a shirt cost 100 pesos, then you could buy it for $10. If the dollar increased in value, let’s say, $1= 20 pesos, then the same shirt would only cost you $5. Also, a shirt that cost $5 in the U.S. would originally cost 50 pesos, but now costs 100 pesos.
ExampleExample
Now let’s say $1= 10 pesos. If a shirt cost 100 pesos, then you could buy it for $10. If the dollar decreased in value, let’s say, $1= 2 pesos, then the same shirt would only cost you $50. Also, a $5 shirt in the U.S. would originally cost 50 pesos, but now costs 20 pesos.
Exchange Rates and Trade
• If the dollar increases in value, then other nation’s goods will be cheaper to us and our goods will be more expensive to them.
• If the dollar decreases in value, then other nation’s goods will be more expensive to us and our goods will be cheaper to them.
Benefits and Losers
• If the dollar increases in value:
- Consumers will get cheaper goods from other countries.
- Businesses will be hurt because other countries will be less likely to buy American products.
Benefits and Losers
• If the dollar decreases in value:
- Consumers will pay more for foreign goods.
- Businesses will sell more to other nations and will hire more workers.
Questions?