What effect does currency appreciation have on exports?

When a currency appreciates, it means that the value of that currency has increased relative to other currencies. This change has a direct effect on international trade, particularly with respect to exports.

When exports are priced in the appreciating currency, they become more expensive for foreign buyers. For example, if a U.S. company sells a product for $100, and the dollar appreciates against the euro, that same product may cost more euros for a European buyer compared to before the appreciation. As a result, foreign demand for those exports is likely to decrease because they are now less competitive in price compared to goods priced in other, less appreciated currencies.

This dynamic explains why the correct answer is that currency appreciation makes exports more expensive for other countries. The increased cost can reduce the quantity of goods that foreign purchasers are willing to buy, leading to a potential decline in export volumes. Therefore, this understanding of how currency value impacts export pricing is a crucial component of macroeconomic theory and international trade.