Printer Friendly| Balance of Payments | Effects of Imbalances in Trading Accounts |
| Effects of Exchange Rate of Balance Payments |
| Effects of Adjustment Mechanisms | Exchange Rates Factors |
In the short term, a
weakened exchange rate would normally make its exportable goods cheaper. At the same time imports become more
expensive. This should have an immediate beneficial effect on the balance of
payments, but as most imports are essential to our economy, their volume is
scarcely reduced. As a result, the higher import costs, due to a weakened
exchange rate, put upward pressure on the rate of inflation which feeds through
into higher domestic and export prices.
Conversely, any benefits to export prices are only short term. In fact, as the increased cost of imports is immediate, and as it takes longer for export orders to materialise, it can be argued that there is very little benefit to the balance of payments of a weakened currency. Exporters can rarely take full advantage of the 'improved' exchange rate before increased costs begin to bite.
If you are importing or exporting, for expert commercial foreign exchange services, speak to us at Raphael's Bank.
Quick and easy foreign exchange deals via our branch network, treasury centres or over the Internet.
More information.