How does foreign exchange rate affect business?

When the domestic currency goes up against a foreign currency, it makes imports cheaper and exports more expensive RELATIVELY. So domestic businesses that import alot (i.e. retailers) would be happy and exporters (i.e. coal miners) would be unhappy. Because importers can get goods cheaper they either have higher profits or they can lower price and be more competitive. For the exporters, they now have to take either a profit cut or increases prices which leads to lower demand.

When currencies depreciate its the other way around, which is why export heavy economies are happy to see a lower currency (i.e. China).

Theres also something to be said about fx mkts and business investment. FX markets are volatile and sometimes this can lead to investment cycles shocks as well, the best example recently is the Asian Financial Crisis (in 97??) where currencies suddenly depreciated causing a massive withdrawl of investment money which led to businesses either having no money or higher interest rates for money that was still left around.

How does foreign exchange rate affect business?

Country A%26#039;s currency appreciates relative to Country B%26#039;s. Firms in Country A which export goods to Country B will be hurt because their goods are more expensive for customers in Country B despite no change in the nominal price. Firms in Country A which import raw materials from Country B will be helped because the cost they pay for inputs has dropped despite no change in the nominal price. The effects are obviously the opposite in Country B.