NOTE 8--Exchange rate

Exchange rate is the price of one currency in terms of the other currency. It is a component of monetary policy that it can affect the economic growth,unemployment,inflation and balance of payments focusing on the export and import.
To decide whether to increase exchange rate or not is very difficult.If there is a depreciation of currency:1) The less power of the domestic currency will lower the price of export and then, increase the export which may reduces the trade deficit.2) The price of import increases that the import goods will be reduced which put pressure on the domestic goods.
Exchange rate is the price of one currency in terms of the other currency. It is a component of monetary policy that it can affect the economic growth,unemployment,inflation and balance of payments focusing on the export and import.
To decide whether to increase exchange rate or not is very difficult.If there is a depreciation of currency:1) The less power of the domestic currency will lower the price of export and then, increase the export which may reduces the trade deficit.2) The increasing export will be regarded as an injection to increase the economy.3) More confidence will be built up as more demand for domestic goods which leads to more investment.
Drawbacks:1) The price of import increases that the import goods will be reduced which put pressure on the domestic goods. Therefore,an increasing demand will lead to an inflation.2) Imports are more expensive with the depreciation which make the industries feel hard to buy the raw material that the cost of supply will increase.
We can use J-curve to illustrate the current account surplus or deficit affected by the exchange rate. Lastly,it's important to analyse the elasticity of import.