Exchange rates affect international trade and investment from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
Exchange rates play a crucial role in determining the levels of international trade and investment. When a country's currency appreciates, its goods and services become more expensive for foreign buyers. This can lead to a decrease in exports as foreign customers seek cheaper alternatives. On the other hand, a depreciation of a country's currency makes its exports more competitive in the global market, leading to an increase in export levels.
Similarly, exchange rates also impact international investment decisions. A stronger currency makes foreign investments more attractive as investors can purchase more assets in the foreign country for the same amount of their domestic currency. Conversely, a weaker currency may deter foreign investors as their returns may be eroded when repatr...
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