EXCHANGE RATE EFFECT ON BOP (Balance of payments)
It is actually the purchasing cost of a currency in terms of other currency .
let's compare EURO with USD .
SCENARIO 1:
1EURO=1.355USD
It's mean the trader in UK is supplying 1EURO to to buy the exports of USA which has a worth of (1.355USD).
SCENARIO 2:
1EURO=0.5USD
Now trader in UK is supplying 1EURO to have only 0.5 USD which is quite drastic for that trader and in turn for the UK' ECONOMY as well .
If exports of USA has same value as before appreciation in it's currency value then trader in UK will have to pay more EUROS to have same amounts of exports of USA as can be had at it's lower amount .
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