Question

Explain why a country might prefer to have a currency with a low exchange rate. Then explain the reasons why a country might want to have a high exchange rate. Be thorough

Answer 1

A country will prefer to have a low exchange rate when it wants to promote exports.A lower exchange rate accounts for a lower price of domestic goods and a lower price increases the competitiveness of domestic goods in the world market,increasing their demand.

A country maintains a higher exchange rate when it wants to attract foreign capital,because a higher exchange rate is the result of higher interest rate.Higher interest rate makes capital investment in the country more profitable,causing capital inflow in the country.A country also raises exchange rate when it wants to limit its exports.