If, however, imports have an elasticity to price less than 1, their values in local currency will grow instead of falling.
"International comparisons of current values converted to a common currency are "distorted" by wide exchange rate fluctuations."
Exchange rate influences also the external purchasing power of residents abroad, for example in term of purchasing real estate and other assets (e.g. firm equity as a foreign direct investment), so by different channels, also the balance of payments.
Exchange rate devaluation or depreciation give rise to inflationary pressures: imported good become more expensive both to the direct consumer and to domestic producer using them for further processing.
Symmetrically, the central bank may use a fixed exchange rate as a nominal anchor for the economy to keep inflation under control, compelling domestic producer to face tougher competition as soon as they decide to increase prices or accept to pay higher wages.
i never understand about this.. but i love money ... :p
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