Question

1. Using an example, explain how exchange rates influence business activities?

2. Explain the concept of devaluation, and explain the effect devaluation has on the price of a country's imports.

Answer 1

The exchange rate affects a business activity by affecting export imports, ie, a form that need importing for raw material and produces through it, then its affected through the exchange rate is affected and its production activity due to its court. Is affected. Similarly, the activity of a business firm is also affected in the event that the export is cheap or expensive at the time because it affects its operational cost.

For example,(India important from China),If the hardware industry is being developed by a firm in a country, the cost of raw material related to it will have an impact on its process of production i.e. expensive, cheaper production cost depends on the cost of the raw material, which the exchange Is related to rate.

When the exchange rate is determined by the central /monetary authority of a country, it is called fixed exchange rate rigime, under which the value of the currency or the interval of value is fixed by the center authority of the economy of a country.Under this, the exchange rate of the country's currency by the Monetary Authority, compared to the currency of other major economies, like dollar.

Under fixed exchange rate, when a country has dropped its currency against the dollar or has been made cheaper(1 dollar =70 rupee increase to 75rupee), it discourages imports and encourages exports due to that country's exports become cheap and imports expensive. Which would have led to a rapid increase in business activity related to that country's exports.

As goods become expensive, they are not imported and attempts are made to produce them at the country level, thereby eliminating dependence in production, that is, on other countries, which lead to innovation, job creation and self Relientness.