Effects of Fluctuations in Exchange Rates

When a country's currency depreciates, exporting firms may have competitive advantage but businesses which rely on imports for raw materials or components will find costs rising.  This may make them less competitive on both domestic and foreign markets.

If the domestic currency appreciates then imports will become cheaper to domestic customers and exports more expensive to foreign customers.  this will result in a full demand for the businesses goods abroad and increase competition from imports in the home markets.