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Appreciating Currency and Balance of Payments

Question

Analyse the consequences of an appreciating currency on the current account of the balance of payments of a country.

Category:

Macroeconomic Factors and Policies

Frequently asked question

Preview Answer

I. 🍃Introduction
- Definition of exchange rate appreciation
- Importance of exchange rate appreciation

II. Effects of exchange rate appreciation
- Higher export prices
- Lower import prices
- Increase in quantity demand for imports
- Decrease in quantity demand for exports
- Increase in value of imports
- Decrease in value of exports
- Possible reduction in net exports
- Current account deficit increases / current account surplus decreases

III. Examples of exchange rate appreciation
- Historical examples
- Recent examples

IV. Factors that influence exchange rate appreciation
- Economic factors
- Political factors
- Market factors

V. 👉Conclusion
- Summary of effects of exchange rate appreciation
- Importance of monitoring exchange rates
- Implications for international trade and the economy.

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