Question

How do exchange rates affect trade partnerships with others?

Answer 1

If your local money takes a lot to exchange with a money of that another country, then your purchasing power to that another country decreases. The reverse is true.

Explanation:

Let's say you leave in Country A and there is another country existing as - Country B and both countries produces apples.

Now, if Country A produced apples exceeding the demand of its population and Country B lacks the same for its population, the latter will be going to Country A.

Therefore the surplus of apples can be sold to Country B and the latter will need more "Country A money" to buy apples. Thus, if Country B needs more "Country A money", then Country B should pay more to buy apples of Country A. In effect, Country B has weaker purchasing power over Country A.

Note: This resembles one of the excerpts of Warren Buffet in one of Carol Loomis' article "Tap Dancing to Work"