Why does currency when it’s low in value help bring up a countries exporting?
For example the euro went down to the dollar and the euro went up. Chinese keep their currency low and are major exporters.
I’m not seeing how this works. Maybe someone could help explain the logic behind it?
Thanks
So what about when a country has to import the materials to manufacture a good with a devalued currency?
Say metals, glassware, textiles, etc.
Wouldn’t that mean more of B for A?
Sorry still failing to see it
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June 6th, 2010 at 7:22 am
When currency A falls relative to currency B, it takes fewer amounts B to buy things denominated in A. Effectively the price of the goods falls. when price falls the quantity demanded will increase.
June 6th, 2010 at 7:22 am
Of course, every country has imports and exports. A lower currency will help the export industries, but potentially damage the industries which depend on imports. The important criteria for the overall net impact on the economy is whether or not a country has a trade surplus, like China or Germany, or has a trade deficit, like the US. For a more detailed discussion see for example:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeCQKANRxIQ4&pos=4
June 6th, 2010 at 7:22 am
if country A is selling product A for $1A and country B is selling product B for $1B and $1A = $1B, then there’s not likely to be either a trade surplus or deficit for either country, but lets say the exchange rate changes, and $1A = $2B, that would mean that country A can buy Product B for only $0.5A ($1B = $0.5A)
what happens is, people that would have bought product A see a huge saving of 50% if they buy product B, so if you assume that none of the product A gets sold, and all of the product B gets bought by country A, country B will have a huge trade surplus.
But you do have the problem you mentioned, no one likes living in country B because the imports are so expensive, and everyone spends their time working to ship cheap goods to country A, UNLESS, you’re some kind of brilliant bastard like China, that manufactures so much damn stuff, that they don’t even need imports anymore, except for metals of course, but China will have that base covered in the future as well, China is beginning to move their capital from bonds into commodities, including buying a large stake in all the major mining companies around the world, so that even if they have to pay a lot for raw materials, they will effectively be buying it from themselves, even if those companies are based mostly in foreign countries.