Exchange Rates and International Transactions Exchange Rates and relative prices Import and export demands are influenced by relative prices Appreciation of a countrys currency Raises the relative price of its exports Lowers the relative price of its imports Depreciation of a country's currency Lowers the relative price of its exports Raises the relative price of its imports Copyright C 2003 Pearson Education, Inc Slide 13-8Copyright © 2003 Pearson Education, Inc. Slide 13-8 ▪ Exchange Rates and Relative Prices • Import and export demands are influenced by relative prices. • Appreciation of a country’s currency: – Raises the relative price of its exports – Lowers the relative price of its imports • Depreciation of a country’s currency: – Lowers the relative price of its exports – Raises the relative price of its imports Exchange Rates and International Transactions