International Currency Fluctuation And Impact

How are you as a consumer affected by changes in international currencies? What are the factors driving changes in the value of international currencies? Why do all business people need to understand the importance of the international banking and monetary system and how it impacts on their own enterprise?

Impact of changes in international currency on consumers

The global nature of today's world makes us very susceptible to any international economic changes. Most nations today are interconnected in terms of trade and businesses. Currencies are exchanged between nations for trading, import and export purposes. US Dollar and Euro have been the most widely used currency for trade, across the globe  (Lightstone, 1986). Because of this interdependency often exchange rates fluctuate, making one currency comparatively stronger or weaker than the other one (Lightstone, 1986) . These fluctuations in international currencies affect the nature and volume of consumption of consumers. Usually, as one international currency value fluctuates, the domestic currency either strengthens (comparative deflation) or weakens (comparative inflation). 

Although a lot of implications arise on the consumption of regular consumers by changes in international currencies, we would be discussing only a few important among them.

• Impact on commodity goods: Most commodity goods prices can rise if the related international currency's value appreciates. This means that the value of the domestic currency is depreciating and thus the value of commodities is inflated. This impact occurs directly as in case of imported goods or indirectly as prices of other goods in the market fluctuates (Flynn, 1997). Many home-made commodities' prices also fluctuate as they may be manufactured domestically but might be using imported parts or machinery. As the currency devalues compared to the international currency, the imported goods become costlier and thus their consumption might get reduced. 
• Impact on Travel & Tourism: Devaluation of domestic currency compared to international currencies makes travel much costlier. However, in the reverse case, it becomes a heavenly situation for travelers. In such case, they can afford otherwise much costlier travel plans (Goldberg & Knetter, 1997). Hotel rates, transportation, shopping, etc. become much cheaper when the domestic currency appreciates compared to the international currencies.

Impact on international savings and investments: As the domestic currency devalues against the international currency, investing in foreign assets becomes tougher. It is so because of the decline in the purchasing power of the domestic currency. The impact of domestic currency devaluation is similar for international savings also. However, when the domestic currency value appreciates compared to the international currency, investments flows out of the domestic country (Morgan, 2004). Now, investors can invest in much costly assets and businesses which they could not have in the prior situation.