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Chapter 5: Q4DQ (page 679)

Explain how exports and imports tend to influence the value of a currency

Short Answer

Expert verified

The exports and imports affect the demand for foreign and domestic goods, influencing the currency's value.

Step by step solution

01

Definition of Currency

The currency is themedium of exchange for buying and selling goods or services, or money can be paper notes and coins.

02

Step 2Influence of exports and imports on the value of a currency

A domestic currency's value depends upon the relative demand for the goods produced domestically against those made in a foreign country. If the demand for domestic goods increases, then the demand for domestic currency will also increase, leading to a rise in the value of the domestic currency against foreign currency. It can happen conversely if the demand for foreign goods increases, then the demand for foreign currency will increase, leading to the appreciation in the value of the foreign currency.

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Most popular questions from this chapter

J & J Enterprises is considering a cash acquisition of Patterson Steel Company for \(4,500,000. Patterson will provide the following pattern of cash inflows and synergistic benefits for the next 20 years. There is no tax loss carryforward.

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List the factors that affect the value of a currency in foreign exchange markets.
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