If you’re not a business or finance wiz, it can be difficult to know exactly what that means. That’s why we wanted to share some handy information to know about currency exchange rates, what they mean, and how they affect the economy.
6 Things to Know About Currency Exchange Rates
1. Businesses usually benefit from a weaker currency.
When the dollar (or another national currency) is weak or down in value, businesses inside that nation benefit — as long as they sell to a global market. That’s because it is cheaper to buy their goods abroad. Businesses with a lot of exports similarly suffer when a currency is strong, because their products cost more abroad and international sales are likely to decline.
2. Consumers benefit from a stronger currency.
When you are buying, not selling, you want the dollar to be stronger. That’s because imported goods cost less when the dollar is strong. Consumers pay more for imported goods when their own currency is weak. So if you want to buy luxury goods from abroad, now’s a good time while the dollar is up!
3. Stocks sometimes suffer (and sometimes don’t) when the dollar is stronger.
Since businesses may be suffering from fewer sales abroad, the stock market sometimes takes a hit. This isn’t always true, though. Companies that manufacture abroad (and thus now pay less for labor and materials) or that have large domestic markets usually do well. For this reason, a strong currency can have a sometimes unexpected effect on a person’s investments.
4. Traveling abroad is cheaper while the dollar is stronger.
Ever wanted to go to Europe? Now may be the time with the euro so much weaker in comparison to the dollar. That’s because your money will stretch further when your home currency is strong.
5. A strong currency helps keep inflation low.
The strong dollar keeps prices low, and attracts investment into the U.S. economy thanks to the relatively stronger economy. This helps keep the lid on inflation, which is better for us all as consumers.
6. Not even economists fully agree on what a strong dollar means for the economy.
Don’t feel bad if you can’t fully wrap your head around the overall impact of currency exchange rates. Not even economists agree on what will happen if the dollar continues to stay so strong. While these specific impacts are easy to measure, the overall impact on the economy is difficult to predict. Only time will tell exactly what impact the strong dollar has on our overall economy.
Hopefully, this is enough to help you speak knowledgeably about the topic when it comes up in the future, but this is just one of many finance topics that many people find confusing or need a little help on. That’s why it can help to occasionally review these topics to stay sharp. Brainscape has a very handy business and finance section in our Knowledge Rehab subject that makes it super easy to understand these topics and use them well in conversation. Check them out to see what useful things you may learn!
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