Discuss the role of changing currency exchange rates on trade of goods and services.
Currency exchange rates play an important role in international trade because changes in the value of currency affect the prices of exports and imports. These changes influence exporters, importers, consumers and the overall economy.
SLO Content
The exchange rate is the value of one country's currency compared to another country's currency. When the value of Pakistani Rupee changes against foreign currencies such as the US Dollar, it affects the cost of imported goods and the competitiveness of exported products. A weaker rupee can make Pakistani exports cheaper for foreign buyers but makes imports more expensive, while a stronger rupee can reduce import costs but may make exports more expensive.
Activity
Currency Exchange Rate Impact Simulator
Select a currency exchange rate situation and observe how it affects Pakistan's trade of goods and services. Analyse the impact on exporters, importers and consumers.
Select an option above to see the effect on Pakistan's trade activities.
Student Reflection Questions
1. Why do exports become cheaper when the value of Pakistani Rupee decreases?
2. How do changing exchange rates affect the cost of imported goods?
3. Which situation is more beneficial for exporters: a stronger or weaker currency? Explain.
4. Why is maintaining a stable exchange rate important for international trade?