The Effect of Exchange Rate on Foreign Trade

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In this article, we discuss the relationship between the exchange rate and international trade. The purpose of these studies is to give an idea to the economic parties on the subject. In this content; We can say that the exchange rate has two kinds of effects on foreign trade. These effects will be discussed in two dimensions as export and import. First, let’s explain the concepts of the exchange rate, import, and export.

The exchange rate shows how much foreign currency can be bought with one unit of local currency. For example, it shows how many US dollars you can buy with one Turkish lira. This rate refers to the USD / TL rate. Imports; It is the general name given to foreign goods and services entering the country from abroad. For example, the goods sent from Turkey to Russia means to be imported into Russia. On the other hand, it means that the same goods for export to Turkey.

First, we will discuss the effect of exchange rate on imports;
If the exchange rate rises, we expect the prices of foreign goods to rise. For example, when we buy a product for a dollar for a lira, we now have to pay two TL. for the same product because the exchange rate has doubled. This shows us that if the exchange rate rises, the power of the domestic money buyer will decrease.

On the other hand, the same phenomenon affects exports in the opposite direction. So if the exchange rate is lowered, we can import the same product cheaper this time. In other words, domestic purchasing power has increased.

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