Import and export affect the economy as well as consumer and also the domestic currency which further decides the nation’s economic growth. The exchange of goods between nations is what constitutes the global market and thus is very important in finance. A steady growth of both imports and exports leads to a healthy economy.
While on one hand export brings in capital, on the other imports bring in choice to consumers which is reflective of a healthy demand in the national market. The growth of import and export though steady must not in be in favor of a growing trade deficit (higher imports than exports) as a continuous increase in trade deficit leads to lower exchange rates (value of the domestic currency as against foreign currency) which may lead to price hikes in the market. The constant degradation of currency exchange rate affects the economy as well as consumers who will now get the imported goods at a higher price in the market. A trade surplus (higher exports than imports) points in favor of the domestic economy. the trade balance (surplus or deficit) is an economic indicator. An unmanageable deficit usually points to a devaluation of the domestic currency.
Apart from this, the import of some products that act as raw materials in production of others reduces the manufacturing cost that a firm incurs and thus brightens prospects for profits and minimizes investment in a full set up manufacturing plant. When importing a product, the exchange rate plays a vital role. The exchange rate determines the competitiveness of a product in the market, for example a currency having an exchange rate of INR 40 is preferable to one having an exchange rate of INR 50 if both sell their products at the same value in their local currencies.
Too high or low value of exchange may affect the import and export adversely. Both stronger and weaker domestic currencies have their pros and cons, while one affects the competitiveness in exports, other affects the domestic economy in terms of labor and manufacturing costs. Thus, it is important to maintain the exchange rates so as to maintain a trade balance and a steady growth of economy.
These international trades affect our day-to-day life even if we are not directly involved in these trading practices. The price hikes that consumers often complain about are not just due to low production, but also due to some of the factors mentioned above. Thus, it is important to keep an eye out for investment options to safeguard our assets in this fickle economy and to be ready for all kinds of situations.
About Carson Derrow
