What are the Advantages and Disadvantages of Currency?
Answers
Answer:
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Answer:
Advatanges:
competition advantage for local suppliers; their products are cheaper for foreigners, this increases exports.
Higher tourism; since country is cheaper for foreigners they have higher incentive to have a vacation which also increases exports.
Cons:
Imports are more expensive, causes inflation for imported products, detrimantal if a country is depended on exports.
Not everything has high elasticity, you may skip buying a smartphone or a car from abroad but your country might be buying all of his petrol, gas from abroad, which makes essential goods a lot more expensive.
Everything abroad is more expensive for citizens, they buy less imported goods, tend to go abroad less. These decreases imports.
All the foreign denominated debt is much more expensive. Think of a company who bought x amount of foreign denominated debt, now they have to pay for it more than how much they burdened.
It can cause a recession if the currency falls a lot since it will cause chain reaction in the economy and causes cycles of higher debt, more money going out because of the decreasing currency which makes the debt even higher, causes hyperinflation, less trust on the currency and so on and on.
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