- The British use the pound sterling, while Germans use the euro, so a British exporter will receive euros from export sales, which will need to be exchanged for pounds. A stronger euro will mean more pounds per euro, so the exporter will be better off. In addition, the lower price for German imports will stimulate demand for British exports. For both these reasons, a stronger euro benefits the British exporter.
- The Dutch use euros while the Chileans use pesos, so the Dutch tourist needs to turn euros into Chilean pesos. An increase in the euro means that the tourist will get more pesos per euro. As a consequence, the Dutch tourist will have a less expensive vacation than he planned, so the tourist will be better off.
- The Greek use euros while the Canadians use dollars. An increase in the euro means it will buy more Canadian dollars. As a result, the Greek bank will see a decrease in the cost of the Canadian bonds, so it may purchase more bonds. Either way, the Greek bank benefits.
- Since both the French and Germans use the euro, an increase in the euro, in terms of other currencies, should have no impact on the French exporter.
Expected depreciation in a currency will lead people to divest themselves of the currency. We should expect to see an increase in the supply of pounds and a decrease in demand for pounds. The result should be a decrease in the value of the pound vis à vis the dollar.
Lower U.S. interest rates make U.S. assets less desirable compared to assets in the European Union. We should expect to see a decrease in demand for dollars and an increase in supply of dollars in foreign currency markets. As a result, we should expect to see the dollar depreciate compared to the euro.
A decrease in Argentine inflation relative to other countries should cause an increase in demand for pesos, a decrease in supply of pesos, and an appreciation of the peso in foreign currency markets.
The problem occurs when banks borrow foreign currency but lend in domestic currency. Since banks’ assets (loans they made) are in domestic currency, while their debts (money they borrowed) are in foreign currency, when the domestic currency declines, their debts grow larger. If the domestic currency falls substantially in value, as happened during the Asian financial crisis, then the banking system could fail. This problem is unlikely to occur for U.S. banks because, even when they borrow from abroad, they tend to borrow dollars. Remember, there are trillions of dollars in circulation in the global economy. Since both assets and debts are in dollars, a change in the value of the dollar does not cause banking system failure the way it can when banks borrow in foreign currency.
While capital flight is possible in either case, if a country borrows to invest in real capital it is more likely to be able to generate the income to pay back its debts than a country that borrows to finance consumption. As a result, an investment-stimulated economy is less likely to provoke capital flight and economic recession.
A contractionary monetary policy, by driving up domestic interest rates, would cause the currency to appreciate. The higher value of the currency in foreign exchange markets would reduce exports, since from the perspective of foreign buyers, they are now more expensive. The higher value of the currency would similarly stimulate imports, since they would now be cheaper from the perspective of domestic buyers. Lower exports and higher imports cause net exports (EX – IM) to fall, which causes aggregate demand to fall. The result would be a decrease in GDP working through the exchange rate mechanism reinforcing the effect contractionary monetary policy has on domestic investment expenditure. However, cheaper imports would stimulate aggregate supply, bringing GDP back to potential, though at a lower price level.
For a currency to fall, a central bank need only supply more of its currency in foreign exchange markets. It can print as much domestic currency as it likes. For a currency to rise, a central bank needs to buy its currency in foreign exchange markets, paying with foreign currency. Since no central bank has an infinite amount of foreign currency reserves, it cannot buy its currency indefinitely.
Variations in exchange rates, because they change import and export prices, disturb international trade flows. When trade is a large part of a nation’s economic activity, government will find it more advantageous to fix exchange rates to minimize disruptions of trade flows.
Kwa mfano, Ujerumani hutumia euro, lakini Uingereza hutumia pauni ya Uingereza, na kwa hivyo, kwa sababu ya kuuzwa kwa bidhaa za nje, bidhaa hizo zinapaswa kubadilishwa kwa pauni. Euro yenye nguvu itamaanisha pauni zaidi kwa kila euro, kwa hivyo mtoaji atakuwa bora. Kwa kuongezea, bei ya chini ya uagizaji wa Ujerumani itasababisha mahitaji ya uagizaji wa Uingereza. Kwa sababu hizi zote mbili, euro yenye nguvu inasaidia mtoaji wa Uingereza. Uholanzi hutumia euro wakati Chile hutumia pesos, kwa hivyo mtalii wa Uholanzi anahitaji kubadilisha euro kuwa pesos za Chile. Kuongezeka kwa euro kunamaanisha kwamba mtalii atapata pesos zaidi kwa kila euro. Kwa hivyo, kwa sababu ya hali ya hewa, utalii wa Uholanzi haujapata faida kubwa, na kwa hivyo, kwa sababu ya hali ya hewa, utalii wa Uholanzi haujapata faida kubwa. - Wagiriki hutumia euro huku Wakanada wakitumia dola. Kuongezeka kwa euro kunamaanisha kwamba itanunua dola zaidi za Kanada. Kwa sababu hiyo, benki ya Ugiriki itapata kupungua kwa gharama ya dhamana za Canada, kwa hiyo inaweza kununua dhamana zaidi. Kwa vyovyote vile, benki ya Ugiriki inanufaika. - Kwa kuwa wote Wafaransa na Wajerumani kutumia euro, ongezeko la euro, katika suala la sarafu nyingine, haipaswi kuwa na athari kwa mtoaji wa Ufaransa. Kupungua kwa thamani inayotarajiwa katika sarafu kutaongoza watu kujiondoa kwenye sarafu hiyo. Tunatarajia kuona ongezeko la usambazaji wa pauni na kupungua kwa mahitaji ya pauni. Matokeo yanapaswa kuwa kupungua kwa thamani ya pauni ikilinganishwa na dola. Viwango vya chini vya riba vya Marekani hufanya mali za Marekani zisipendwe sana ikilinganishwa na mali za Umoja wa Ulaya. Tunatarajia kuona kupungua kwa mahitaji ya dola na ongezeko la usambazaji wa dola katika masoko ya fedha za kigeni. Kama matokeo, tunapaswa kutarajia kuona dola kupunguzwa thamani ikilinganishwa na euro. Kupungua kwa mfumuko wa bei wa Argentina ikilinganishwa na nchi nyingine kunapaswa kusababisha ongezeko la mahitaji ya pesos, kupungua kwa usambazaji wa pesos, na thamani ya peso katika masoko ya fedha za kigeni. Tatizo hutokea wakati benki zinapoomba mkopo wa fedha za kigeni lakini kutoa mkopo kwa fedha za ndani. Kwa kuwa mali za benki (mkopo waliotoa) ziko katika sarafu ya ndani, wakati madeni yao (pesa waliokopa) ziko katika sarafu ya kigeni, wakati sarafu ya ndani inapopungua, madeni yao hukua. Kama sarafu ya nchi hiyo itashuka sana, kama ilivyotokea wakati wa mgogoro wa kifedha wa Asia, basi mfumo wa benki unaweza kushindwa. "Hii ni tatizo kubwa kwa benki za Marekani, kwa sababu hata wakati wao kukopa kutoka nje ya nchi, wao huwa na kukopa dola. """ Kumbuka, kuna bilioni za dola zinazozunguka katika uchumi wa ulimwengu. Kwa kuwa mali na madeni yote ni kwa dola, mabadiliko katika thamani ya dola hayasababishi kushindwa kwa mfumo wa benki kama inavyoweza kutokea wakati benki zinapoomba mkopo kwa sarafu ya kigeni. Ingawa kukimbia kwa mtaji kunawezekana katika hali zote mbili, ikiwa nchi inaajiri ili kuwekeza katika mtaji halisi, ina uwezekano mkubwa wa kuweza kuzalisha mapato ya kulipa madeni yake kuliko nchi inayokopa ili kufadhili matumizi. Matokeo yake, uchumi unaosababishwa na uwekezaji ni uwezekano mdogo wa kusababisha kukimbia kwa mtaji na mfumuko wa uchumi. Sera ya fedha ya kupungua, kwa kuendesha juu ya viwango vya riba vya ndani, ingesababisha fedha kupongezwa. Kwa sababu ya thamani ya sarafu katika soko la fedha za kigeni, bidhaa za nje za nchi zinaweza kuuzwa kwa bei ya juu. Thamani ya sarafu ya juu pia itasababisha uagizaji, kwani sasa itakuwa nafuu kutoka kwa mtazamo wa wanunuzi wa ndani. Uuzaji wa bidhaa za nje na uagizaji wa bidhaa za nje huathiri kiwango cha jumla cha bidhaa za nje (EX) na kuathiri mahitaji ya jumla (AD). Matokeo yake itakuwa kupungua kwa Pato la Taifa (GDP) kupitia utaratibu wa kiwango cha ubadilishaji, na kuimarisha athari ya sera ya fedha ya kupunguzwa kwa matumizi ya uwekezaji wa ndani. Hata hivyo, uagizaji wa bei nafuu ungechochea usambazaji wa jumla, kurudisha Pato la Taifa kwa uwezo, ingawa kwa kiwango cha chini cha bei. Kwa ajili ya sarafu kuanguka, benki kuu tu haja ya kutoa zaidi ya sarafu yake katika masoko ya fedha za kigeni. Inaweza kuchapisha sarafu nyingi za ndani kama inavyopenda. Kwa ajili ya sarafu ya kupanda, benki kuu inahitaji kununua sarafu yake katika masoko ya fedha za kigeni, kulipa na fedha za kigeni. Kwa kuwa hakuna benki kuu ambayo ina kiasi kisicho na kikomo cha akiba ya fedha za kigeni, haiwezi kununua fedha zake kwa muda usiojulikana. Mabadiliko katika viwango vya ubadilishaji, kwa sababu wanabadilisha bei za uagizaji na usafirishaji, husumbua mtiririko wa biashara ya kimataifa. Wakati biashara ni sehemu kubwa ya shughuli za kiuchumi za taifa, serikali itaona ni bora zaidi kurekebisha viwango vya ubadilishaji ili kupunguza usumbufu wa mtiririko wa biashara.