Question

How does a rise in exchange rate affect exports of a country?

Hint:

A rise in exchange rates (currency appreciation) makes exports more expensive, thus potentially reducing their demand in foreign markets.

Answer 1

Step 1: Define rise in exchange rate.
A rise in the exchange rate means that the value of a country's currency has increased relative to other currencies. This is often referred to as currency appreciation.
Step 2: Discuss the effect on exports.
A rise in the exchange rate (currency appreciation) makes a country's goods and services more expensive for foreign buyers. As a result: 1. Exports decline: When the domestic currency appreciates, foreign consumers find the country's goods and services more expensive, leading to a decrease in demand for exports. 2. Competitiveness reduces: Higher prices make the country less competitive in international markets, potentially reducing export volumes.