The influence of the exchange rate on international economic relations

Acting as a tool for linking the value indicators of the national and world markets, the exchange rate plays an active role in the MEO and reproduction. Using the exchange rate, the entrepreneur compares his own production costs with world market prices. This makes it possible to identify the result of foreign economic operations of individual enterprises and the country as a whole. When selling goods on the world market, the product of national labor is universally recognized on the basis of an international measure of value. And in the global foreign exchange market, parity of international currency value. Based on the exchange rate ratio, taking into account the share of a given country in world trade, an effective exchange rate is calculated. The exchange rate has a certain impact on the ratio of export and import prices, the competitiveness of firms, and the profit of enterprises.

Sharp fluctuations in the exchange rate increase the instability of international economic, including monetary and financial relations, and cause negative socio-economic consequences.

Lowering the national currency, ceteris paribus, makes it possible for exporters to receive an export premium when converting the empty currency and sell goods at prices below the world average. This stimulates mass exports, which in turn leads to higher prices for imports, leading to higher prices in the country. The depreciation of the exchange rate reduces real debt in the national currency, increases the severity of external debts denominated in foreign currency. The export of profits, interest, dividends received by foreign investors in the currency of the host countries becomes unprofitable. These profits are reinvested or used to purchase goods on the domestic market for subsequent export.

An increase in the exchange rate, on the contrary, leads to a decrease in price competition, export efficiency decreases, which can lead to a reduction in export industries and national production in general. Import is expanding. The influx of foreign and national investments into the country is stimulated, the export of profits from foreign investment is increasing. The real amount of external debt is reduced.

The gap in external and internal depreciation of the currency, i.e. the dynamics of its exchange rate and purchasing power is of great importance for the MEO. If domestic inflationary depreciation of money is ahead of the depreciation of the currency, then, ceteris paribus, the import of goods is encouraged in order to sell them on the national market at high prices.

Using the exchange rate, prices for goods and services produced in different countries are compared. The competitiveness of national goods in world markets, export and import volumes, and, consequently, the state of the current account balance depend on the level of the exchange rate.

The exchange rate affects the direction of international capital flows. The decision to invest national capital in the assets of a country is made on the basis of the expected real profit on invested capital, which depends on the interest rate and expected changes in the exchange rate.

The exchange rate, along with the interest rate, in itself acts as the price of an asset. In the presence of developed financial markets, the current value of the asset, which is expected to be obtained in the future, is determined by the discounting of its future value in accordance with the interest rate and the expected level of the exchange rate.

The dynamics of the exchange rate, the degree and frequency of its fluctuations are indicators of the economic and political stability of society.

The exchange rate is the subject of macroeconomic policy. With its help, the balance of payments is often settled. The exchange rate plays an important role in the development and implementation of monetary policy, since maintaining a certain level of the exchange rate may require the use of official foreign exchange reserves, which will inevitably affect the supply of money in the economy.

In countries with economies in transition, in implementing stabilization programs, the exchange rate can be used as a tool to combat inflation.