How can I explain the difference in currency (strength or weakness) by comparing the type of imports and exports in Mexico and USA?
“How can I explain the difference in currency (strength or weakness) by comparing the type of imports and exports in Mexico and USA?”
Generally a strong currency is defined by a stable and high value in comparison to other currencies. A weak currency shows fluctuations in its value and it is seen by other economies as a relatively cheap currency. The strength or weakness is influenced by exports and imports and influences exports and imports.
Theoretically speaking more exports from an economy mean an increasing demand to the currency of that economy. So the exchange rate of that currency goes up. This means that the economy is becoming more expensive for other economies. As a result exports may go down. This causes exchange rates to go down etc. Especially when the exports refers to goods that have a lot of substitutes, exports and exchange rates will fluctuate. Other economies will continuously search for the cheapest alternatives.
When one economy does have goods or services that are more unique (because of a higher added value) other economies will rely on the exports of this economy and the exports and currency will show more stability.
More imports from an economy mean increasing supply of the currency of that economy, forcing the exchange rate of that currency to go down. As a result imports may go down. This causes less supply of the currency and increasing exchange rates. Especially when the imports refers to luxury goods imports and exchange rates will fluctuate.
The balance of trade is the difference between the value of exports and imports in an economy over a certain period of time. A positive balance of trade is known as a trade surplus and occurs when value of exports is higher than that of imports; a negative balance of trade is known as a trade deficit or a trade gap. Economies with a weaker currency can export more and import less than economies with a stronger currency.
Let’s compare Mexico and US. Mexico has a trade deficit. The trade
Generally a strong currency is defined by a stable and high value in comparison to other currencies. A weak currency shows fluctuations in its value and it is seen by other economies as a relatively cheap currency. The strength or weakness is influenced by exports and imports and influences exports and imports.
Theoretically speaking more exports from an economy mean an increasing demand to the currency of that economy. So the exchange rate of that currency goes up. This means that the economy is becoming more expensive for other economies. As a result exports may go down. This causes exchange rates to go down etc. Especially when the exports refers to goods that have a lot of substitutes, exports and exchange rates will fluctuate. Other economies will continuously search for the cheapest alternatives.
When one economy does have goods or services that are more unique (because of a higher added value) other economies will rely on the exports of this economy and the exports and currency will show more stability.
More imports from an economy mean increasing supply of the currency of that economy, forcing the exchange rate of that currency to go down. As a result imports may go down. This causes less supply of the currency and increasing exchange rates. Especially when the imports refers to luxury goods imports and exchange rates will fluctuate.
The balance of trade is the difference between the value of exports and imports in an economy over a certain period of time. A positive balance of trade is known as a trade surplus and occurs when value of exports is higher than that of imports; a negative balance of trade is known as a trade deficit or a trade gap. Economies with a weaker currency can export more and import less than economies with a stronger currency.
Let’s compare Mexico and US. Mexico has a trade deficit. The trade