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Saturday, May 28, 2011

Does a country need strong currency?

There are countries like China who control their currency while other countries let their
Currency value determined by the Foreign Exchange Market (FEM).
Supply of local currency to FEM comes from importers who want to buy goods and services from abroad while demand of local currency comes from foreigners who buy goods and services from that country.
Large budget deficit of a country causes interest rates to go up, which results in increased buying of bonds of that country by foreign investors.
Strong local currency ensures good standard of living of citizens of that country. Weaker local currency makes the goods and services of a country cheaper in comparison to the same abroad.
Higher net-export increases domestic production and employment. Weak local currency makes the goods and services cheaper in comparison to other countries and thus favourable for export boost.
Weaker currency makes imports expensive but on other hand creates more jobs, and that’s why it is often overlooked.

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