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Hello Sir,
I am not able to understand the topic of inflation. Though I understood what it means, still its effect are not clear to me. so i have some questions here.
1) What does decrease/Increase inflation on import implies?
2) How does strengthening/Weakened currency effect sales?Looking forward to understand more.
Thank You
1 If inflation in your country is higher than inflation in the country from which you import, your currency is losing value faster than theirs and your exchange rate weakens. Eg £1 =$1.5 to £1 = $1.2. This means that the price of imported goods rises so that something costing $1,200 would originally have cost 1200/1.5 = £800 now costs 1200/1.2 = £1000.
2 It depends to whom you are selling. Sales to the home market are unlikely to be affected (unless raw materials have to be imported. Selling price in an export market will be affected. in the above example, if you were exporting an item that sells for £600 it would cost $900 or $720 depending on the exchange rate. If the export price moved to $720 $900 from sales should increase.
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