When a country's currency appreciates, is this generally good news or bad news for a country's consumers?  Is it generally good or bad news for the country's businesses? 

 

Currency Appreciation and its effects

            Currency appreciation occurs when one currency’s value rises relative to the other. This rise may be influenced by interest rates, government policies, business cycles, and trade balances. Regarding the cost of regular goods or services, higher prices help sellers while harming buyers, whereas lower prices benefit customers while harming sellers. When it comes to exchanging rates, however, this is not the case.

            Currency appreciation is a curse for a US company selling abroad. A strong US dollar devalues foreign currencies. For a company obtaining foreign currency from export sales then converting it back to US dollars for consumption, a stronger dollar indicates that the foreign currency purchases fewer US dollars, reducing the company's earnings (dollars) ("Strengthening and weakening currency | Macroeconomics," n.d.). As a result, the firm's exports may be reduced, or its selling price may be raised, reducing exports. As a result, a country's exports are hurt by a stronger currency.

            A stronger currency, on the other hand, is a boon for a foreign corporation selling in the US market. When export sales revenue is transferred back to the exporting company's home currency, it means that every dollar earned buys more of the home currency. As a result, the importing firm earns more. Consequently, the company may increase its sales in the US economy, or lower its prices, which will evidently increase sales ("Strengthening and weakening currency | Macroeconomics," n.d.). Therefore, a stronger currency may cause consumers to buy more from overseas producers, increasing the country's imports.

            One prevalent misconception about currency exchange rates is that an appreciating or strong currency is superior to a depreciating or weak one. But don't be misled by the lingo. When a currency strengthens or appreciates to the point where it can buy more other currencies, it benefits some in the economy while harming others. Therefore, a stronger currency is not always better; it is simply different.