Rising Exchange rates: A blessing or… a curse?

Discussion in 'Economics' started by AlaabedBahuguna, May 11, 2007.

  1. Have you been overseas recently? Are you an international student who is supported by his overseas-working parents? Or are you a lover of the famous French "Brie"?
    Regardless of whom you are and what your profession is, you are very much likely to have been exposed to effects of the recent increases in the exchange rate. So what is the exchange rate? Why does it change and how does it change affect us?

    To start with, an exchange rate is the price of one currency expressed in terms of another currency.

    Given this definition, the exchange rates are influenced by a wide range of domestic and international factors that alter the relative attractiveness of two countries as destinations for capital flows. Among those various factors are the domestic and international interest rates, economic growth and political stability.

    The effects of the Australian dollar appreciation on us, people in Australia, are spread over a wide range of spectrums. The stronger Australian dollar promises you a relatively cheaper trip to overseas; and for the same amount you spent last summer, you are likely to get more VALUE this time. It also means that you should be able to get your dear "Mustang Convertible" for a relatively cheaper price!

    But is it all good? Well, if you are a farmer then your crops are now more expensive in the competitive international markets and depending on the price elasticity of demand your income will either increase due to the increase in price or will fall due to huge reduction in the price-sensitive demand; an outcome most evident in the long run. For an international student, like me, whose home currency isn't any stronger against the dollar, this may mean a lower then usual income, so "Good luck" trying to find the right time for getting your home currency converted and meanwhile please do consider cutting down some of your unnecessary expenses.

    Thus the question of whether a currency appreciation is a blessing or a curse really depends on your stance in an exchange transaction; whether you are demanding the appreciated Australian dollars and goods for example or the other country's currency and products.

    By Alaa Alaabed & Megha Bahuguna