How can an unexpected fall in exchange rates injure the financial health of a nation’s banks?

1 answer:

6 0

The unexpected fall in exchange rates will increase the cost of imports and decrease the cost of exports which directly impacts national banks.

<h3>What is the exchange rate? </h3>

It is the value of the currency of a country when compared to the value of the currency of another country. A fall in the exchange rate would mean that the value of the currency has decreased compared to its previous value.

In the case of a fall in the exchange rate, the number of exports will increase and the number of imports will decrease. When that happens there will be an increase in sales which will benefit the domestic firms.

The increase in exports will also need to increase aggregate demand (AD). All of this might lead to the demand for the workforce and help in job creation.

Therefore, the fall in the exchange rate will impact various sectors including the national banks.

Read more about exchange rates, here

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