What is the relationship between import and exchange rate?
A rising level of imports and a growing trade deficit may have a negative effect on a country’s exchange rate. A weaker domestic currency stimulates exports and makes imports more expensive. So, a strong domestic currency hampers exports and makes imports cheaper.
Exchange rates are constantly changing. These are broadly based on supply and demand. Whether one currency is in higher demand than another, depends on the perceived value of owning it. That includes either to pay for goods and services, or as an investment.
This impacts on the cost that we are paying for goods to be imported. And, of course, that means that the prices we sell our goods for increases.
There are several reasons for these increases and decreases in the exchange rates and these include:
- Supply and demand
- This has been impacted by Covid and the effect it has had on supply chains
- One of the major causes attributed to exchange rate increases and decreases. Some inflation is healthy for an economy, as it shows increasing demand versus supply. But too much inflation can be a problem, as goods and services become less affordable.
- Perceived value
- If a product is perceived by consumers to have a higher value this will increase the cost; sometimes considerably
- A country’s trading relationship with the rest of the world can also affect its currency. There are countries that export more than they import. They will usually have stronger currencies than those with trade deficits.
So in short, the prices we pay for imports have many factors. Most are out of our control so it is important to shop around and get the best deal available or use a company like Mobile Source Group to help you!
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