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Economics explained


Exchange rates

Depreciation/ Devaluation Effects

Depreciation/ Devaluation Effects

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A fall in the value of the exchange rate will

make exports cheaper, in terms of foreign currencies

make imports more expensive, in terms of the domestic currency.

This may enable domestic firms to sell more products both at home and abroad.

Some domestic consumers may now purchase home-made products rather than the now relatively more expensive imports.

Some foreigners may now buy the country’s exports rather than products produced by fi rms in other countries.

A rise in net exports will increase aggregate demand.

This may result in in a rise in output. Higher output may result in lower unemployment. The higher aggregate demand that occurs because of a rise in net exports may also give rise to inflationary pressure.

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