Economics Exchange Rate Systems Questions
The impact of exchange rate changes on international debt can vary depending on the specific circumstances. Generally, if a country's currency depreciates (falls in value) relative to the currency in which its debt is denominated, it can increase the burden of the debt. This is because the country will need to use more of its own currency to repay the debt, making it more expensive in domestic terms.
On the other hand, if a country's currency appreciates (rises in value) relative to the currency in which its debt is denominated, it can reduce the burden of the debt. This is because the country will need to use less of its own currency to repay the debt, making it cheaper in domestic terms.
Exchange rate changes can also affect the ability of a country to service its debt. If a country's currency depreciates significantly, it may lead to higher inflation and reduced economic growth, making it more difficult for the country to generate the necessary income to repay its debt.
Overall, the impact of exchange rate changes on international debt is complex and depends on various factors such as the magnitude of the exchange rate change, the level of debt, the currency in which the debt is denominated, and the economic conditions of the country.