Before we look at these forces, we should sketch out how exchange rate movements affect a nation 's trading relationships with other nations. A higher currency makes a country 's exports more expensive and imports cheaper in foreign markets; a lower currency makes a country 's exports cheaper and its imports more expensive in foreign markets. A higher exchange rate can be expected to lower the country 's balance of trade, while a lower exchange rate would increase it.
Also it cause the country losing its culture or at least be colonized due to the influx goods from exporting countries.
The Australian economy marks external stability as an important objective because it can influence other important aims such as economic growth, unemployment and inflation. External stability is the concept of sustaining a nation’s external accounts so that in the future, it is able to service its foreign liabilities and can avoid currency volatility. When looking at external stability, we must examine Australia’s balance of payments, which records all economic transactions between Australia and the rest of the world. Australia’s balance of payments has two components, which is the current account and the capital and financial account. The current account measures the receipts and payments for trade in goods and services, transfer payments and income flows, while the capital and financial account shows international borrowing, lending, purchasing and sales of assets.
Raw Materials Unavailability: Raw materials are less available or unavailable. It may be gathered from distance sources that incur high expenses. Poor infrastructure for production of product & services: Due to undeveloped mode of every sector , Production infrastructure is not suitable. Markets are not available: Market for products are not available. People want low cost product because they have less sources of income. Customers are less available for good products: High quality products are costly. They are not beared by customers because their purchasing power is low. More dependent families: Less people earn and more people want to consume. It means more people are dependent upon income generating members. Lands are not suitable for agriculture: Lands are mostly barren due to poor irrigation system, mismanagement of water, unavailability of modern agriculture methods application and tools, etc. People depend upon still upon ancient irrigation system. Cheap labors are available: Labors are easily available at low costs but they are mostly unskilled. So they are useless in technical works or in high rated projects.
The loss of revenue within the nation, possible exchange modifications influence the individual and the business sectors. The buying power of the consumer is downgraded(Oanda, 2017).
Hint : When there is a change in the exchange rate, this would automatically alter the prices of all foreign goods to domestic goods, as the domestic prices are intertwined with the foreign prices. Thus, these changes would affect the trade flows between nations.
Fourth, the global economic situation is not clear at present. The stock market collapse and economic data pointing to a slowdown in China have clouded the outlook for the global economy. At the same time the other emerging economies slowed their growth economy or started to fall. It has the negative impact on the exports. And it even outweighing any advantages the collapse of the dollar may
Exports and imports are what encompass international trade balance. When there are more exports over imports a trade surplus happens and when there are more imports over exports a trade deficit happens. A country will acquire large quantities of foreign assets when it runs in a trade surplus so it can lend internationally to other countries. A country sells of its assets to other countries and becomes a big debtor nation when it runs on a trade deficit. A
These two factors, the devaluation of the exchange rate in conjunction with the impending default of
1) The scope of any economy is that of creating a balance between its exports and imports, or exporting more than importing, in order to generate national gains and revenues. Within the United States however, it has often happened that the totality of the imports exceeded the totality of the exports. The result of
A country’s economic failure plays a significant role in causing poverty, this effects the citizens of the country itself; as a result, citizens end up becoming poor. In other words, the country’s economic status is directly related to the citizen’s financial situation. As an example a country with weak economic system will not be able to fulfill the citizen’s financial needs resulting
For example if we have to go to the other countries and if we want to buy anything, we need to supply the currency of same country by exchanging the AUD. That will increase the outflow of AUD. Also If we import from other countries, we have to pay exchange our currency to other and it is also a outflow of AUD.
Some countries are more or less deficit nations which mean they import more than they export, while some countries produce more than is absorbed by their domestic economy so they export the surpluses. Either of these actions means that a
- For the foreign producers, when their currency weakens, production becomes cheaper (especially if they have currency reserves in dollars), and their sales go up, since the weaker currency is more attractive to foreign buyers.
Current Account Deficit. A rise in the ratio of the current account deficit to GDP is generally associated with large external capital inflows that are intermediated by the domestic financial system and could facilitate asset price and credit booms. A large external current account deficit could signal vulnerability to a currency crisis with negative implications for the liquidity of the financial system, especially if the deficit is financed by short-term portfolio capital inflows. Financial crises that have