1. Exchange rate and import and export Generally speaking, the decline of local currency exchange rate, that is, the depreciation of local currency and foreign currency, can promote exports and curb imports; If the exchange rate of local currency rises, that is, the ratio of local currency to the outside world rises, which is beneficial to imports and unfavorable to exports.
2. Exchange rate and price From the perspective of imported consumer goods and raw materials, the decline in exchange rate will cause the domestic price of imported goods to rise. As for the impact on the overall price index, it depends on the proportion of imported goods and raw materials in the gross national product. On the other hand, if the local currency appreciates and other conditions remain unchanged, the price of imported goods may decrease, which can play a role in restraining the overall price level.
3. The conversion of exchange rate and capital outflow into short-term capital flow is often greatly influenced by exchange rate. When the local currency depreciates, domestic investors and foreign investors are unwilling to hold various financial assets denominated in local currency, and will convert them into foreign exchange, leading to capital outflow. At the same time, due to the continuous exchange of foreign exchange, the shortage of foreign exchange supply and demand will be aggravated, and the local currency exchange rate will be further lowered. On the other hand, when there is a trend of appreciation of local currency abroad, domestic investors and foreign investors try to hold various financial assets denominated in local currency, which will lead to capital inflows. At the same time, since foreign exchange has been converted into local currency, the oversupply of foreign exchange will further promote the exchange rate of local currency.