Question

Explain the impact on US export and import if the US dollar has depreciated in comparison with other currencies. For example, the exchange rate for the Canadian dollar was 1.36 per U.S dollar in 2003. Now in 2020, it is 1.31 Canadian dollars per U.S.dollar under this case the dollar has suffered a slight depreciation. Also, when the dollar has depreciated in the case of the Chinese Yuan from 8.27 in 2003 to 6.69 yuans in 2020 per U.S dollar. Also, when there is not either appreciation or depreciation from 2003 to 2020 which is the case of Saudi Arabia currency its exchange rate remains the same 3.75 Riyals per dollar since 2003. Then explain the impact of U.S. exports and imports under these scenarios.

Answer 1

Imports are goods that are produced in a foreign country but sold in a home country. when people in one country demand demand products from firms in another country they must enter into another market first to buy that nation's Currency. once this currency is exchanged they can then purchase the products.

Exports are goods that are produced in a home country but sold to foreign countries. if exports are falling, it means there is less demand for U.S. goods by foreigners.

When the US dollar is strong compared to many other countrie's currencies imports are less expensive.this will lead to higher imports. When the dollar depreciates , or is weak. this can lead to lower imports or goods purchased from foreign countries. on the other hand a strong dollar decreases exports because US products seem more expensive to foreign consumers.

If the dollar depreciates (the exchange rate falls) the relative price of domestic goods and services falls while the relative price of foreign goods and services increases. the change in relative price will increase US exports & decrease it's imports.

One of the biggest factors that influences imports and exports is the value of currencies between trading countries. it's important to note that the weaker dollar can eventually lead to an increase in demand for US goods or exports from foreign companies.

A strong dollar or currency leads to higher imports. a weak dollar or currency to lower imports. The lower demand for dollars denominated goods can lead to a weaker dollar exchange rate versus other foreign currencies.

The flow of dollars out of the country and the lack of foreign demand for US exports can lead to a depreciation in the dollar. however as the dollar weakens, US exports become cheaper to foreigners.

So if dollar depreciates then imports will be increase and exports will be decrease.