Economics Exchange Rates Questions
Exchange rates can have a significant impact on international trade imbalances. When a country's currency depreciates, meaning it becomes weaker compared to other currencies, its exports become cheaper for foreign buyers. This can lead to an increase in exports and a decrease in imports, ultimately reducing the trade imbalance. On the other hand, when a country's currency appreciates, becoming stronger, its exports become more expensive for foreign buyers, potentially leading to a decrease in exports and an increase in imports, thus worsening the trade imbalance. Therefore, exchange rates play a crucial role in influencing the competitiveness of a country's exports and imports, which in turn affects international trade imbalances.