What is the role of exchange rates in international trade?

Exchange rates play a critical role in international trade by determining the value of one country’s currency relative to another’s. A favorable exchange rate can make a country’s exports cheaper and more attractive to foreign buyers, boosting trade and economic growth. Conversely, if a country’s currency is strong, its goods become more expensive for foreign consumers, potentially reducing exports. Exchange rates are influenced by various factors, including inflation, interest rates, and government policies. They can fluctuate due to market forces or be controlled by central banks, affecting the balance of trade and international business relationships.