Consider how a currency appreciation might affect national income Essay - 2

Consider how a currency handle strength affect national income - Essay compositors caseIf an economy of a nation presents a favorable environment for investments that are relatively better than other(a) nations, then the nation result experience inflow of capital. With flexible foreign exchange rates, this capital inflow will tend to increase the value of the countrys currency. Factors such as relative harvest-festival monetary values, monetary policy, inflation rate differences and income changes influence the appreciation of a countrys currency (LIPSEY & CHRYSTAL, 2011 p 167). The effects of these factors are discussed belowSuppose that the income of major calling of a country increase to a greater margin, at that place will be greater increase in domestic income which is associated with increased aspiration of the imported goods. The nations trading partner demand for the local goods will increase thereby the demand for local currency will exceed quantity supplied hence appreciation.Deflation is always associated with appreciation. Suppose the price levels of a nations commodities decreases while that of its trading partner remains the relatively stable. The local goods will seem cheap to foreigners hence increasing the demand for local goods. This will increase the demand for funds hence appreciation of the local currency.Countries that implement restrictive monetary policies will be decreasing the bring home the bacon of their currency hence currency appreciation. The appreciation of a countrys currency is relative to the currencies of its trading partner.Higher rates of interest make it more attractive to save in a nation. This is because there is a better rate of return on saving accounts. Therefore there will be inflow of money in country hence appreciation of the currency.Stronger economic growth tends to cause an appreciation in the forex market. This is so due to the fact that with higher economic growth, there is likelihood that the nati on might experience increase in interest rates (DABROWSKI 2001, p 10).