2 ms·
Tangentially related but I'll take this opportunity to ask. One thing I have never understood is the idea that a weak currency is good for exports, because it m
by bondarchuk 6y ago
Tangentially related but I'll take this opportunity to ask. One thing I have never understood is the idea that a weak currency is good for exports, because it makes goods cheaper (more competitive) for the foreign buyer. It seems like it would be very simple for exporting companies to adjust their prices instantly to counteract any weakening of the currency. If not, they are essentially lowering their prices. Alternatively, why can't exporters just lower their prices without weakening the entire currency?
- haakonhr 6y agoI think a first-order explanation (that probably breaks down quickly) is that often many fixed costs are paid in the local currency, such as salaries and rent. To be profitable (in the local currency that they care about) they need to take a certain price, otherwise they're operating at a loss. Currency fluctuations affect all these factors equally so that in the end your product is cheaper for the importer. The salaries and other costs are of course lower as well when the local currency is exchanged to whatever currency the trade is taking place in. The flip side is of course when you rely on imports to produce your exports (natural resources for example)
- scatters 6y agoYes, exporters can choose to raise their prices in the local currency. However, this comes with some administrative overhead and is visible to the buyer, hence prices tend to be sticky. Alternatively, they can price in dollars in which case they take on currency risk in the other direction but get the full benefit of a fall in their local currency. > Alternatively, why can't exporters just lower their prices without weakening the entire currency? Because then they wouldn't be able to make a profit after paying their local employees and suppliers.