Home > Free Essays > Economics > Currency > Currency Unions and the Real Exchange Rate

Currency Unions and the Real Exchange Rate Essay

Exclusively available on IvyPanda Available only on IvyPanda
Updated: Jun 19th, 2021

Introduction

Currency variations are normal occurrences in the foreign exchange system. The rate of exchange of a given currency over another is controlled by several essential and technical aspects (Cavallo, Neiman, & Rigobon, 2014). Such factors encompass the demand and supply of the involved currencies, interest rate differential, economic status of the country, and inflation among others. Since such aspects are always in a state of perpetual instability, the value of currencies keeps fluctuating (Chen & Juvenal, 2016).

Main body

Though the influence of a currency’s gyrations on the economy is extensive, many businesspersons do not pay close attention to the rate of foreign exchange as their businesses are carried out entirely using a domestic currency. For most consumers, foreign exchange rates only become relevant for infrequent activities or practices such as foreign travels and imports.

A misleading notion that many people have is that the appreciation of a domestic currency is good as it makes a country able to pay for imports. The truth is that an overly strong currency may result in a considerable drag on the economy if it is prolonged (Caselli, Chatterjee, & Woodland, 2017). This is because many industries could be made uncompetitive and some exporters may consider leaving the business because of making low profits. Nevertheless, though customers may find a weak domestic currency objectionable for making imports expensive, it could have economic benefits as exporters and local traders could make huge profits. In this aspect, the appreciation and depreciation of domestic currencies have both indirect and direct effects on economic variables.

Conclusion

For instance, fluctuations in the value of the domestic currency may affect the interest rate payable on mortgages, returns on investment, and the cost of products in a local store to mention a few.

References

Caselli, M., Chatterjee, A., & Woodland, A. (2017). Multi‐product exporters, variable markups, and exchange rate fluctuations. Canadian Journal of Economics, 50(4), 1130-1160.

Cavallo, A., Neiman, B., & Rigobon, R. (2014). Currency unions, product introductions, and the real exchange rate. The Quarterly Journal of Economics, 129(2), 529-595.

Chen, N., & Juvenal, L. (2016). Quality, trade, and exchange rate pass-through. Journal of International Economics, 100, 61-80. Web.

This essay on Currency Unions and the Real Exchange Rate was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Essay sample written from scratch by
professional specifically for you?

Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar

certified writers online

Cite This paper
Select a referencing style:

Reference

IvyPanda. (2021, June 19). Currency Unions and the Real Exchange Rate. https://ivypanda.com/essays/currency-unions-and-the-real-exchange-rate/

Reference

IvyPanda. (2021, June 19). Currency Unions and the Real Exchange Rate. Retrieved from https://ivypanda.com/essays/currency-unions-and-the-real-exchange-rate/

Work Cited

"Currency Unions and the Real Exchange Rate." IvyPanda, 19 June 2021, ivypanda.com/essays/currency-unions-and-the-real-exchange-rate/.

1. IvyPanda. "Currency Unions and the Real Exchange Rate." June 19, 2021. https://ivypanda.com/essays/currency-unions-and-the-real-exchange-rate/.


Bibliography


IvyPanda. "Currency Unions and the Real Exchange Rate." June 19, 2021. https://ivypanda.com/essays/currency-unions-and-the-real-exchange-rate/.

References

IvyPanda. 2021. "Currency Unions and the Real Exchange Rate." June 19, 2021. https://ivypanda.com/essays/currency-unions-and-the-real-exchange-rate/.

References

IvyPanda. (2021) 'Currency Unions and the Real Exchange Rate'. 19 June.

Powered by CiteTotal, easy essay referencing maker
More related papers