A change in the exchange rate for a country's currency alters the prices of

Question

Quizplus · Accepted Answer

A change in exchange rate affects both exports and imports since it changes the relative price of a country's currency to others, influencing the cost of importing and the revenue gained from exporting. This leads to an increase in the demand for exports (which become cheaper for foreigners) and a decrease in the demand for imports (which become relatively more expensive for domestic consumers). As a result, the balance of trade is affected, resulting in changes in the current account balance. Furthermore, changes in the exchange rate may also influence inflationary pressure through changes in the prices of imported goods, which can lead to changes in the prices of domestic goods and services.

A Change in the Exchange Rate for a Country's Currency