Pros And Cons Of Exchange Rate In International Trade

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Pros & Cons From the 20 journal articles, we may know some pros and cons of exchange rate in International trade or the author had facing the problem when doing this research. According to Nicita (2013); Auboin and Ruta (2012) had found exchange rate misalignment do affect international trade flows in a substantial manner and the currency undervaluation is found to promote exports and restrict imports, moreover, in magnitudes misalignment across currencies result in trade diversion quantifiable in about one percent of world trade. According to Wong (2004) had found that the countries trade in exports can benefit from increasing in exchange rate volatility. The use of disaggregated bilateral data in the analysis has several advantages compared…show more content…
As we know when the devaluation or depreciation increases exports by making exports relatively cheaper, and discourage imports by making imports relatively more expensive, thus improving trade balance. Furthermore, Umoru and Oseme (2013) had state that the a real depreciation policy will encourage export and discourage imports because of the price effect, currency depreciation will lead to a decrease in the export-import ratio in the short run. However, Genc and Artar (2004) had state that the exchange rates should be determined freely by the mechanism of supply and demand. In other words, the markets should determine the optimal level of exchange…show more content…
The relationship of exchange rates and international trade in view of the recent exchange rate volatility based on the producer theory of the firm under uncertainty, where firm profitability is related to exchange rate fluctuations point to a positive relationship. When exporters are sufficiently risk-averse, a positive relationship may still arise, very risk-averse firms will worry about the worst possible scenario. When risk increases, the way to avoid a drastic decline in export revenues is by increasing the export

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