Answer :
Exchange rates play a crucial role in affecting international trade in the following ways:
1. They determine how much a country can import for a certain amount of currency. When a country's currency is strong compared to another country's currency, it can import more goods for the same amount of money. Conversely, when a country's currency is weak, it will be able to import fewer goods for the same amount of money.
2. They encourage free trade between countries that once had barriers to trade. If exchange rates are favorable, it can promote international trade by making exports cheaper for foreign buyers and imports more expensive for domestic consumers. This can lead to increased trade volume between countries.
3. They do not force a country to adjust its import rates to match its export rates. Exchange rates are not directly linked to import or export rates. Instead, they reflect the relative value of currencies in the global market, influencing trade flows based on competitiveness.
4. They do not prevent developing countries from trading with developed countries. While exchange rates can impact the cost and competitiveness of goods in international trade, they do not necessarily prevent developing countries from trading with developed nations. Factors such as market access, trade policies, and economic development play significant roles in shaping international trade relationships.
In summary, exchange rates can impact international trade by influencing the cost of imports and exports, promoting free trade, and reflecting the competitiveness of currencies in the global market.
