If you were an exporter form an emerging country to the United States would you prefer...

If you were an exporter form an emerging country to the United States would you prefer a strong or weak dollar? Explain

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Expert Solution

If I were an exporter from an emerging country to the US, I would have preferred STRONG dollar. First let us understand what would a strong dollar mean. For simplicity, assume I am from India (currency - Indian Rupee, INR).

Suppose, the xchange rate is 1USD = 50 INR.

A strong dollar compared to INR would mean, INR is depreciating against US dollar or in other words, US dollar is appreciating against INR.

Suppose I sold my product to a company in US for 100 USD. When I converted this amount for INR, it would have given me at current exchange rate (assumed above) = 50 * 100 INR = 5000 INR. This was what I expected.

However, just became I converted the USD to INR, USD appreciated (or became stronger) say to 1 USD = 55INR. Now the amount that I would receive would still be 100 in USD terms. But, in terms of INR, new amount to be recived on converting this USD to INR would be = $100 * 55 = $5500.

This implies weakening of INR has helped me earn $5500 or a profit of $500 for 100 USD. Hence, I would like to have INR weaker or rather would prefer a stronger USD.

jeff jeffy answered 1 year ago

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