How Will the Exchange Rate Fluctuation Affect the Economy?

Ⅰ. The fluctuation of exchange rate affects the rise or fall of general merchandise price

After the exchange rate changes, it has an immediate impact on the prices of imported general merchandise. First, the prices of imported consumer goods and raw materials have changed, and then the prices of goods processed with imported raw materials or domestic goods similar to imported goods have also changed.

After the exchange rate changes, the domestic prices of exported goods also change. If the exchange rate of a domestic currency drops, the purchasing power of foreign currencies will increase, and foreign importers will increase their demand for domestic exports. When the supply of export commodities cannot increase correspondingly, the domestic prices of export commodities will inevitably arise. In the export trade of primary products, the impact of exchange rate changes on prices is undeniable. In the upswing stage of the capitalist cycle, due to the increase in total domestic and foreign demand, there will be an increase in imports, an increase for foreign exchange, and the soaring of foreign currency prices, causing the increase in the domestic prices of exported goods and imported general merchandise products. And on this basis, the entire price level of goods has been promoted.

Ⅱ. The fluctuation of exchange rate will affect the production department exporting general merchandise

When a foreign currency appreciates, it will make imported goods more expensive, which will increase the production cost of export goods producers who mainly import raw materials and weaken their competitiveness in the international market. Producers who mostly rely on domestic raw materials are more advantageous.

When a foreign currency depreciates, imported goods will become cheaper, which will reduce the production cost of producers exporting general merchandise who mainly import raw materials and increase the competitiveness of export products in the international market. At the same time, producers exporting available merchandise who mostly rely on domestic raw materials do not get the benefits of exchange rate changes.

The changes in capital flow for non-trade items affected by exchange rate changes will also have a corresponding impact on the supply and demand of funds in the production department exporting general merchandise.