Why does the country s economic instability affect its own exchange rate? What is the connection bet

The exchange rate is the ratio between at least two currencies and is divided into direct and indirect pricing. Generally speaking, the rise or fall of the exchange rate of the magic seed currency (it can also be said that the appreciation or depreciation of a certain currency) refers to the rise or fall of the ** of the currency, as for which currency, it depends on the corresponding currency mentioned.

The country's economy is unstable, foreign capital fluctuates on a large scale, interest rates will naturally be the best, and supply and demand will be unbalanced. When foreign capital withdraws, interest rates will naturally fall. However, at present, the withdrawal of international funds is often carried out by means of large-scale financial moves in the nature of smashing the market.

People go to higher places, and water flows to lower places. It's the same with money, if you make money, it will flow there, because efficiency is the essential attribute of capital. If a country's economy is not good or unstable, then the country's currency may depreciate or otherwise cause the foreign company to invest in the country or to short or long the country's currency in the international financial institutions, which will cause the exchange rate to fluctuate dramatically, such as the Thai baht in '97.

It is not only the stability of the economy that affects the exchange rate, but once the exchange rate is opened, it must have the ability to resist the blow of foreign capital, and economic stability can certainly enhance this ability. But the overall national strength is not good, and it still can't resist the toss of the big countries in Europe and the United States.

The safe and stable development of the country's economy is a positive factor. Under the direct pricing method, the local currency exchange rate rises and the local currency appreciates. On the contrary, the exchange rate of the local currency decreases and the local currency depreciates.

For example, if there is a problem with import and export, if the import volume is too large, there will be too much foreign currency, the foreign currency will depreciate, and the local currency will appreciate.

Because of the risk factor, the greater the risk, the outflow of funds. This has been the case with the Iranian currency recently.

Rongyi Financial Network, there is a financial college, which has this kind of common sense!

Exchange rate changes will have an impact on all aspects of a country's economy, especially on a country's balance of payments, capital flows, foreign exchange reserves, etc.

The impact of exchange rate changes on imports and exports is mainly manifested in the following two aspects:

After the depreciation of a country's currency, the export commodities expressed in the local currency will be converted into less foreign currency in the international market than before the depreciation, and the sales of foreign countries will decline, and the competitiveness will be enhanced, which is conducive to the export of domestic commodities and the expansion of exports; The import goods denominated in foreign currency are converted into the local currency when they are sold in the country, and the local currency is higher than before the depreciation, the import cost increases, and the profit decreases, which is not conducive to the import of domestic goods, and the decrease in imports will increase the surplus and improve the balance of payments of a country.

After the appreciation of a country's currency, the local currency converted into the domestic currency of imported goods denominated in foreign currency when sold in China is reduced compared with before the depreciation, and the import profit increases, which is conducive to the import of domestic commodities and imports;

J-curve effect. After the depreciation of a country's currency, the actual change in the amount of imports and exports depends on the degree to which the supply of import and export commodities responds to the highest level. In the initial period after currency depreciation, the deficit of the balance of payments will not only not narrow, but will widen.

Effect of exchange rate changes on capital flows:

When a country's currency depreciates externally, 1 unit of foreign currency can be converted into more local currency than before the depreciation of the local currency, which will increase the inflow of foreign capital and reduce the outflow of domestic capital. When a country's currency depreciates but does not depreciate abroad, that is, when the foreign exchange rate will rise but not rise, the holders of domestic capital and foreign investors will suffer losses in order to avoid the depreciation of the country's currency, which will cause the flight of domestic capital.

When a country's currency appreciates externally, 1 unit of foreign currency can be converted into less local currency than before the appreciation of the local currency, and the foreign capital inflow decreases and the capital outflow increases. When a country's currency will rise but not rise, that is, when the foreign exchange rate will fall but not fall, it will cause a large number of foreign exchange sellers and rush to buy its own currency, which will cause foreign capital inflows.

Effect of exchange rate changes on foreign exchange reserves:

Changes in the exchange rate of the reserve currency will affect the real value of a country's foreign exchange reserves, and if the exchange rate of the reserve currency rises, the real value of the reserve currency will increase, so that the foreign exchange reserves of the country with the reserve currency will increase accordingly; Conversely, if the exchange rate of the reserve currency falls, the real value of the reserve currency decreases, and the foreign exchange reserves of the countries with the reserve currency decrease accordingly.

The impact of the exchange rate on the economy, taking depreciation as an example:

1. The impact of depreciation on imports and exports, the depreciation of the currency means the increase in the foreign exchange rate, that is, the export commodities expressed in foreign currencies have decreased. ** Reduction, which is conducive to profit from the competition in the international market, which in turn is conducive to the expansion of exports. The depreciation of the currency abroad, the foreign exchange rate, and the leakage of socks also indicate that the import of goods expressed in the local currency has increased, which plays a role in suppressing imports.

2. The impact of depreciation on international capital, the impact of depreciation on long-term international capital, under normal circumstances, depreciation will encourage long-term capital inflow. Because of the depreciation of a country's exchange rate, the same foreign investment can purchase more means of production and services than before, which is conducive to attracting foreign investment and additional investment in the country. The impact of depreciation on short-term capital flows, which in general, leads to short-term capital flight.

Short-term capital is highly profit-seeking, liquid, especially floating capital, very speculative, therefore, once the depreciation reduces the relative value of financial assets, short-term capital will flee, and at the same time, depreciation will also cause an inflation expectation, affect the level of real interest rates, play interest parity relations, and induce speculative capital flight.

3. The impact of depreciation on domestic prices, depreciation will put pressure on a country's inflation and cause prices.

4. The difference in economic growth rate, under the condition that other conditions remain unchanged, a country's economic growth rate is relatively high, and its national income will increase relatively quickly, which will increase the country's demand for foreign goods and services, and as a result, the country's demand for foreign exchange tends to increase relative to the supply of foreign exchange available to it, and the country's currency exchange rate**.

It is not difficult to say that international finance is difficult, as long as the basic theories and ideas are mastered, almost all problems can be solved with the same logic.

For the impact of ** level on the exchange rate, first of all, we need to know that the theory that links ** level and exchange rate is the "purchasing power parity theory".

The content of the theory of purchasing power parity is that people need foreign currency because it can buy foreign goods and services, and foreigners need their own currency because they can use it to buy goods and services at home. Therefore, the exchange of the national currency with the foreign currency is equivalent to the exchange of the purchasing power of the country with the foreign country.

And because purchasing power is actually the reciprocal of the general price level, the currency exchange rate between the two countries can be expressed by the ratio of the price levels of the two countries.

To sum it up, that is, the exchange rate of the national currency to the foreign currency = the level of the home country ** the level of the foreign country.

Then, according to this simple formula, we can know that when the ** level of the country rises, the exchange rate of the national currency against foreign currencies rises, that is, the domestic currency appreciates and the foreign currency depreciates. In connection with reality, we can see that the RMB now has a huge appreciation pressure, that is, because China's ** level has risen sharply in recent years, so according to the theory of purchasing power parity, China's currency does need to appreciate in order to meet the requirements of purchasing power parity.

Hope this answer helps!

The currency exchange rate is low, and the market competition is dominant, so every country wants its own currency exchange rate to be low.

If it is determined between countries, the rest should be determined by the International Monetary Organization.