Answer to Question #283607 in Economics of Enterprise for Anil Patil

Question

Justify

1)Merchandise exporters do not typically wish to be in speculative positions, which add an element of

uncertainty to their business.

2)Imbalance in the balance of payments may occur if the exchange rate is fixed, but it will not occur if the rate

is flexible enough to attain its equilibrium level.

Answer 1

1)Merchandise exporters have to be speculative of changes in macroeconomic activities which affect the prices of their merchandise. Exports experiences exchange rate valuation risks which greatly affect the price of goods and thus exporters should be speculative about it so that they can know when depreciation or appreciation will occur to determine their buying patterns.

2) Imbalance of balance of payments can occur with any type of exchange rate regime since it is based on factors such as money supply, economic growth rate, inflation rate, and exchange rate.