Discuss the consequence for an economy if its currency gaining strength [5] or What are the benefits of appreciation of currency?

4. Discuss the consequence for an economy if its currency gaining strength [5]   or  What are the benefits of appreciation of currency?

                          The following are the consequence of the appreciation of currency.

Ø  Effect on import

        The value of currency appreciated, means they are able to buy more commodities from abroad at less price. It is a blessing to countries importing more petrol, food items etc.

Ø  Loss to the exporters.

           Appreciation of currency reduces the export. After the appreciation of the currency foreigners have to pay more money. So exporters may lose the foreign market.

Ø  Capital movement

       Appreciation of currency reduces the import price. So industries can import capital at less cost. More over industries can obtain raw materials cheaply. This improves production.

Ø  Infant industries.

          Appreciation increases the import and this badly affects the new and small industries. Most of the infant industries are unable to compete with their foreign rivals. So appreciation of currency may destroy the domestic industries.

Ø  Unemployment

       Appreciation may increase the import price .Cheap availability of imported goods will reduce the internal demand. This will compel the producers to reduce production. So appreciation of currency is one of the reasons for unemployment.

Ø  Balance of payment and full employment aim

      Appreciation of currency may provide cheap imported goods. Increase in import will make deficit in balance of payment. More import from outside will make inefficient production. So appreciation will not satisfy the government full employment aim.