Imports impact the economy in several aspects. For example, at the micro level, imports affect competition by increasing supply in the domestic market. Consequently, there is more pressure on prices and profitability in the domestic market. On the
Exchange Rate
Why Countries Import: A Look at Factors Affecting Imports
Availability is one of the fundamental factors affecting imports. We import goods from abroad because they are unavailable in the domestic market. For example, the domestic economy does not produce them because the geographical location does not
Foreign Exchange Reserves: A Nation’s Economic Shield for Economic Stability
What's it: Foreign exchange reserves are liquid assets denominated in foreign currency held by the central bank or government for future use. This includes reserves in hard currency (such as dollars, euros, and yen), government securities
Real Exchange Rate: Understand Currency Values & Trade Impacts (Formula, Calculation, Determinants)
What's it: The real exchange rate is the price of one currency against another currency adjusted for differences in the price levels of domestic and foreign prices. The aggregate price level measure is inflation, which shows you the currency's
Purchasing Power Parity Explained: Unveiling True Costs (Calculation, Pros, Cons)
What's it? Purchasing power parity (PPP) is an economic concept for equalizing the price of a set of identical items across different locations. In other words, these goods should be priced at the same level in various countries. The concept works
J-Curve: Devaluation’s Impact on Trade + Its Application in the Private Equity
J-Curve throws a curveball at our intuition. It's a graph shaped like the letter "J" that depicts a surprising trend: sometimes, things might get worse before they get better. This concept applies to two key areas of finance: international trade and
Currency Appreciation: Causes, Impact on Trade, Exports, Imports & More
What's it: Currency appreciation is when the exchange rate of one currency against another currency increases. One unit of currency can buy more of another currency. Appreciation makes foreign products cheaper for domestic buyers, thus
Understanding Currency: History, Types, Exchange & Global Impact
What's it: Currency refers to the money accepted and used as legal tender in a country. It includes banknotes and coins you use daily. The central bank or authority acts as the sole supplier and monitors its circulation in the
Triangular Arbitrage: Exploit Currency Inconsistencies (Risk-Free Profits?)
What's it: Triangular arbitrage is the simultaneous buying and selling of three different currencies and attempts to exploit inconsistencies between their exchange rates. Profits can arise when the cross rates of the three currencies do not really
Spot Exchange Rate: Meaning, Affecting Factors, and How It Works
The spot exchange rate, also known simply as the spot rate, is the current price at which one currency can be traded for another for immediate delivery. This rate is crucial for anyone involved in international business, finance, or simply traveling
Dollarization Explained: How It Works, Example, Pros, and Cons
What's it? Dollarization means adopting the U.S. dollar as a currency and unit of account by countries other than the United States. The term also has a broader meaning: the adoption of foreign currency by a country other than its issuing country.
Pure Floating Exchange Rate: Flexibility & Volatility (Pros, Cons)
What's it? A pure floating exchange rate, or free-floating exchange rate, is a system of exchange rates in which the value of a domestic currency against a foreign currency moves according to a market mechanism. The market mechanism is the
Currency Crisis Explained: Causes, Impacts & Solutions
What's it: A currency crisis is a situation in which the exchange rate of a currency falls, causing a sharp decline in foreign reserves. The fall was possible due to a brief bout of speculation on the foreign exchange market. Simultaneously, the
Exchange Rate Systems: Fixed vs. Floating & Popular Variations
The exchange rate system plays a critical role in the global financial landscape, dictating how currencies are valued against each other. In essence, it's the framework a country adopts to manage its currency's exchange rate. This guide will explore
Exchange Rates Explained: Impact on Trade & Investment (Types, Determinants)
The exchange rate is the fundamental mechanism that allows countries to trade with each other. It essentially tells you how much of one currency you need to exchange to get another currency. Imagine you're an American tourist in Italy and want to buy
Floating Exchange Rates: Freedom & Fluctuations Explained Simply (Pros, Cons)
A floating exchange rate refers to an exchange rate system in which supply-demand on the foreign exchange (forex) market determines the price of a country's currency. The government does not intervene in the market at all to influence the exchange
Central Bank Intervenes in the Foreign Exchange Market: Calming the Currency Chaos
The central bank intervenes in the foreign exchange market to maintain a steady exchange rate. This plays a critical role in fostering a healthy economy, impacting everything from international trade to inflation. But how exactly does a central bank
Passive Crawling Peg: The Inflation-Fighting Exchange Rate System (Pros, Cons)
Looking for a way to understand exchange rates and economic stability? The passive crawling peg might be the answer. This system helps countries combat inflation and maintain a competitive edge in the global market. Let's break down how it works and
Flexible Exchange Rates: Freedom & Fluctuations (Determinants, Pros, Cons)
Flexible exchange rates, also known as floating exchange rates, are a system where a country's currency value is determined by the forces of supply and demand in the foreign exchange market rather than by a central bank. Unlike fixed exchange rates,
Fixed Parity with Crawling Bands: Gradual Exit Strategy for Stable Exchange Rates
Fixed parity with crawling bands offers a nuanced approach to exchange rates, bridging the gap between the stability of a fixed peg and the flexibility of a floating currency. Unlike a completely fixed exchange rate, which can limit a central bank's
Managed Floating Exchange Rate: Balancing Freedom with Stability (Pros, Cons)
A managed floating exchange rate, also known as a dirty float, is a system where governments allow market forces to influence the exchange rate, but they reserve the right to intervene occasionally in the foreign exchange market. This intervention