Imports and exports
are a very crucial part of country’s economy. In present geographical scenario each
country does not have complete resources to sustain entire needs of its
economy. A country has to import goods and services which it is deficient in
and export goods and services which it feels are surplus in production. This is
what is called a ‘foreign trade’ and happens across the world in present global
scenario. It may happen that a country may impose restrictions on some of the products
being exported in view of controlling prices of the products within the country
or impose restrictions on imports of some products and services in view of
protecting the industry producing the same goods and services from external competitors.
These are known as trade restrictions.
Now comes the most
crucial part, the instrument on which this trade happens – the currency. There
are about 150 different currencies in the world. The US Dollar being the most
traded currency forms the base currency of most trade happening in economic
world. This gives rise to a logical question – Why only US dollar? Why not any
other currency? The explanation lies in the fact that it’s currently the most
stable currency in the world economy. The stability comes from the economy of
the United States. US dollar is reliable as it has never been devaluated. This
currency is so reliable that countries like Panama, El Salvador and Ecuador use
it as the only official currency with no local country currency.
As we all have observed
that a currency values change just as share values change. There a many factors
which determine the value of a currency with respect to the base currency. To
exemplify let’s take India Rupee (INR) versus US Dollar (USD). Now the value of
INR will depend on factors like Inflation, Interest Rates, Current Account Deficits,
Public Dept, Terms of Trade, Political stability and Economic performance of India. These factors together determine value of currencies across the world.Thank You for reading !!
-Varun Chauhan
