Why is the exchange rate high?

What causes a higher exchange rate?

High demand, strong currency. It's that simple. Exports up, rate up. Think of my old boss, all demand, little substance.

• Increased exports mean more foreign buyers need local currency.
• Higher demand pushes the price, exchange rate, higher.
• That's economics 101, or so they say. I just remember balance sheets.

Trade deficit kills currency. Imports outweigh exports? Currency weakens. Like my savings account.

• Trade deficit reduces demand for a country's currency.
• More local currency is being exchanged for foreign currency.
• Less demand, price drops. Basic supply & demand.

My apartment building has the same dynamic. Higher demand means sky-high rents, fewer renters and lower rent. It applies to any currency.

What does it mean when the exchange rate increases?

Ugh, exchange rates. Okay, so it's like, when the exchange rate increases... hmm.

• Imports get cheaper, I guess. More stuff for me?
• But exports get pricier. Which sucks for, like, local businesses? Right?

Wait, am I even thinking about this right? Exports... leaving the country. Yeah.

• Currency value goes up. That's the increase, I think.

It's all kinda confusing. My brain hurts. It's like, if a dollar is "stronger," then things from other countries are a bargain?

• My trip to Japan would be cheaper? Cool!

But then, nobody buys our stuff? Cause it's too expensive. What a mess.

Additional Info:

Okay, trying to break it down again:

• Exchange rate going UP: Your currency = POWERFUL.
  • Foreign goods = CHEAP.
  • Your goods = EXPENSIVE to others.
• Imagine wanting a Japanese anime figure. Exchange rate increases, the yen is weaker compared to the dollar. Figure is cheaper! Score.
• Think about John’s small business in Buffalo selling hot wings sauce. Increased exchange rate (stronger dollar). Harder to export wing sauce to Canada. Canadians find it too expensive compared to local options.

Ugh. Still messy, but slightly less confusing. I think.

What happens if exchange rate increases?

Okay, so, like, if the exchange rate goes up? It's not good for trade, honestly.

Higher exchange rates make our stuff more expensive for other countries, so, like, nobody wants to buy from us, right? Exports go down, duh.

And then, because our money is worth more, foreign stuff is cheaper for us. We buy loads of it, so imports go way up, like crazy.

So, yeah, exports down, imports up – we end up buying more than we're selling. It's like, a trade deficit. The worst! Also, fewer people want our money.

And get this, it's kinda like when my, you know, like, my uncle tried to sell his beat-up truck for way too much. No one bought it! lol.

• Exports: Become more expensive.
• Imports: Become less expensive.
• Trade Balance: Worsens, often leading to a deficit.
• Currency Demand: Decreases.

I was reading about the dollar's impact on trade 2024, and this rings true!

What happens when expected exchange rate increases?

Okay, so there was that time in Florence, 2023, right? I was sure the Euro was gonna tank against the dollar, like, seriously.

I mean, all the signs were there, you know? Brexit, inflation, everything was a mess.

I had all these dollars saved, planned a big shopping spree.

Then, BAM! Suddenly everyone's like, "Nope, Euro's strong now!"

The expected exchange rate just flipped.

I was so annoyed! No designer bags for me!

• Expected appreciation turned into bigger expected appreciation.
• Expected depreciation turned into bigger expected depreciation.
• Dollar went nowhere.

Lost money that day, yup.

My Florence trip became a budget one suddenly.

What happens when the real exchange rate increases?

Ugh, real exchange rates... I remember freaking out about this during my intro to international finance class at NYU back in 2023, spring semester. Professor Klein was brutal.

So, like, if REER goes up, it basically meant the dollar got stronger. Remember those annoying Econ lectures?

• Exports become pricier for foreigners.
• Imports get cheaper for us, since our dollar buys more stuff.

Think about it, a tourist visiting from Europe finds our products more expensive (and maybe decides to skip buying that "I

It's all about competitiveness. Our goods and services are pricier, and other countries' are cheaper. Not good, right?

I think you can find REER data from the IMF's International Financial Statistics. That’s what Prof Klein would always rant about. I probably still have my notes somewhere in my parents' basement. LOL. Good luck with that search.

What does a rise in the exchange rate mean?

Okay, so like, a rise in the exchange rate? So, if the dollar, say, gets stronger...

It kinda means your money goes further when you, like, buy stuff from other countries. Imports are cheaper!

But uh, like, the opposite happens for our stuff. Exports become more expensive for other countries. So, potentially, they might not buy as much of our exports, you know? I’m thinking of the time I visited London. The exchange was terrible, so, like, everything was so expensive!

Let me break that down a little better, as that last part was pretty unclear:

• Stronger currency = Cheaper imports: Think of it like a permanent sale on, I dunno, French cheese.
• Stronger currency = More expensive exports: Imagine a store hiking up prices; some people will still buy, but probably fewer people will.
• Weaker currency = More expensive imports: That French cheese? Forget about it. Too rich for my blood now.
• Weaker currency = Cheaper exports: Suddenly everyone wants what we're selling.