Currency effects arise in the conversion of the same number of currency units into a different currency at different exchange rates.
What’s it all about?
- What is the currency effect?
- Example of a currency effect
The currency effect occurs when an identical quantity of currency units is subject to different exchange rates when converted into a different currency.
Example of a currency effect
An example of a currency effect is the impact of currency fluctuations on international trade. Let’s assume that a company in Europe exports products to the USA. When the exchange rate between the euro and the US dollar rises, this means that the euro becomes stronger compared to the dollar. In a case like this, the products exported from Europe become more expensive in the USA because the dollar is worth less.
