Why is the Country’s Currency Affected During Exportation and Importation of Goods?
If you were not listening to your professor during your economics class because its a boring thing, then probably until now you don’t know how the demand and supply law applies to the market.
Its a simple concept that will almost turn too difficult to relate to especially because it is indeed a boring
thing that in fact you may ask yourself “why am I even reading this right now?” lolz
I will be trying compare things to make it simpler that these tiny brains of our can achieved. Let’s just say for example that people in our city needs face mask because of the sudden spread of N1H1 virus in our country which makes the high demand of this product and since its too sudden that manufacturers didn’t see it comin, the price of these masks may become higher as supplies getting low. I am not making this out though and I hope you’re seeing where I’m going…
So these are the Basic Laws of Demand and Supply:
1. If demand increases and supply remains unchanged, then it leads to higher equilibrium price and quantity.
2. If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and quantity.
3. If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity.
4. If supply decreases and demand remains unchanged, then it leads to higher price and lower quantity.
So how does Exportation and Importation of Goods/Servces Affect Currencies?
Currencies are no exemption to this demand and supply law, a currency trader will have to analyze how it may affect the currencies he is trading whenever there is an economics news release explaining about the increase or decrease of the amounts of goods and services imported or exported by a country. This is because it sure will affect currencies. The reason is that the country that’s trying to import products will have to pay in the currency where these products are made. Let’s say for example the US is importing electronic products from Japan, if so then the US has to sell USD to buy JPY, making the demand of JPY high and so value of the USD weaker against JPY as the effect.
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