Answer to Question #80707 in Economics of Enterprise for ntethe

Question

Differentiate between an exchange rate and the foreign exchange market. (4)
4.2 Explain how changes in exchange rates can influence exports and imports in your country
Discuss ANY FIVE (5) arguments for and against the use of trade barriers by the government of your country

Answer 1

Exchange rate is the rate at which one currency will be exchanged for another. [1]
Foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines the foreign exchange rate. [2]
The exchange rate has an effect on the trade surplus (or deficit), which in turn affects the exchange rate, and so on. In general, however, a weaker domestic currency stimulates exports and makes imports more expensive. Conversely, a strong domestic currency hampers exports and makes imports cheaper. [3]
Advantages of trade barriers:
1) Protects business at home
2) Helps prevent influence from unwanted sources
3) Can improve foreign standing with those you wish to by putting barriers up on those countries that they want you to
4) Possibility of destroying the economy of those who you ban
Disadvantages:
1) Bad relations with those who are banned
2) Can cost a lot of money to the government
3) Hurt industry
4) Can reduce the raw materials available to your country
5) Can reduce needed manufactured goods. [4]
Sources:
1) https://en.wikipedia.org/wiki/Exchange_rate
2) https://en.wikipedia.org/wiki/Foreign_exchange_market
3) https://www.investopedia.com/articles/investing/100813/interesting-facts-about-imports-and-exports.asp
4) https://prezi.com/hpv8pnl0cgaa/pros-and-cons-of-trade-barriers/