Each country or group of countries (such as the European Union) has a currency that, due to various factors, has a value that can change constantly or remain stable for a certain time. This phenomenon has very important consequences in commercial markets, since the export and import of products is not exempt from the mentioned factor.
The fluctuation in the value of a specific currency inevitably causes prices to rise or fall. Each monetary authority of each country in the world has policies attached to cases such as the value of their coins. We will talk in this article about the ups and downs of trade and how this affects the export and import of products internationally.
How does it affect the value of currencies?
The first phenomenon that occurs when the value of a currency fluctuates is the decrease or increase in the price of products. If the prices of a product fall in a country due to devaluation, as a consequence, exports increase.
This happens mainly because any buyer is looking for the best prices in the market; therefore, they look for ways to get a greater number of clients and invest in the one that suits them best.
The rulers of a country can be a factor that determines the export value of a product, the decreases or increases are broadly their decision, clearly based on studies done to determine the best way to sell the product in question.
In terms of imbalance in a trade balance, the internal market, by losing purchasing power compared to the outside, creates a price increase, leaving as a result the phenomenon of inflation.
Currency exchanges have been used as market regulation instruments. Thanks to the globalization to which the world is undergoing, an inevitable reduction in tariffs is taking place, taxing the creation of free trade agreements between countries and, in addition, the entry of products.
How do I know which country is worth exporting or importing to?
To internalize and understand in which country can be a place with a positive impact on imports and exports, we can start with the purchasing power parity indicator. This is a concept that basically reliably reflects whether a currency is in an overvalued status or, on the other hand, undervalued. This is done in a simple way by comparing the prices of the same product in more than one country.
Some nations tend to join in the devaluation of a currency so that it weakens and, consequently, gains some sort of competitiveness in the international market, due to its prices. This ship is often jumped on when an economy is in a state of stagnation or regression.
When a currency is appreciated, it obtains benefits against the others. Any buyer will have to pay a high rate to get items in the strengthened currency. This indicator refers to an economy that does not have a deep dependence on trade.
The economy is more a question of demand and supply, because, until now, no country is considered self-sufficient, since each one has a surplus of resources but, on the other hand, a failure or insufficiency of the others. This factor led to the creation of a market for goods and services using the foreign market as a means.
Currently the currency that works as a world reference is undoubtedly the US dollar. It is almost like any commodity in the world: if the dollar is scarce, its value inevitably increases, and the other way around.
Concluding the topic
The well-worn tendency for a nation’s money to appreciate or depreciate, affecting its value, also has a direct effect on imports and exports around the world. Currency fluctuation will make a product more expensive or cheaper in the foreign market. A strong currency means that trade with other countries is diminished due to the issue of competitiveness.
Buyers are always aware of the best prices in the market, creating a phenomenon that affects weaker currencies and helps them to have a greater impact. We hope this article has been useful.