International Business Environment Assignment Help
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Explain the concept of the devaluation of a currency. What effects does this have on the price of a country's imports?
Devaluation is defined as a downward adjustment with respect to the value of a country's currency which would be valued in relation to another currency or even a group of currencies. This is often referred to as a depreciation which is then related to the opposite of revaluation. The devaluation is referred to as a readjustment of a currency's exchange rate.
Currency devaluations are also referred to the term wherein it is used to the countries that can also achieve with respect to the economic policy. It is also denoted to the condition of having a weaker currency in relation to the world that can help in boosting the exports and even work in the condition of shrinking trade deficits along with the process of reducing the cost of interest payments due to the outstanding government debts (Sznycer, 2016).
The effects on the price of imports become expensive. It also leads to higher exports as other countries demand more products & services. The devaluation of currency makes it expensive imports along with cheap exports. It also leads to higher turnaround sales of the exports and gaining more payments on account of global trades. In order to strengthen the currency, the country needs to take concrete steps such as increasing the interest rates, stabilize the economy and even make concrete economic policies. The country needs to stabilize its economy to make its currency stable.
How might international companies adjust to a weak currency?
The international companies need to make their products and services with respect to currency. They need to keep their currency comparatively higher in order to grow with the sales and generate more revenue (Na, 2018). They need to keep their currency competitive else if they keep it higher, would lead to consumers to switch from one product to another. A weak currency would lead the country's exports been able to gain market share eventually making goods are less expensive compared to goods priced in stronger currencies. The idea is to increase sales which can essentially help in booming and making economic growth and jobs. This would help in the attainment of the profits for companies which would eventually help it prosper in the foreign markets.
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