Hello my friends. Welcome back. I miss you a little bit. What we have discussed so far, consumption, investment, government expenditure, everything related to GDP. What's missing? What's next? Oh, yes. I was about forget, exports. But again, pause the video just for a moment to think what could influence the level of a country's exports? Think, what could lead some countries to buy our stuff or your stuff? Obviously, you would say the price of goods exports in the buyer's country. Then you say, sorry Dumas. Yes, it sounds pretty much straight forward, but I did not understand. Don't panic, don't go too far. Take it easy. The price of exported goods in the buyer´s country depends on the exchange rate. Great. Now, we are much more confused than before. Stay with me. Exchange rate is just the price of a currency in terms of another currency. For example, let's use our example of Brazilian currency. Let's say the carry exchange rate between Brazilian currency reais against the US dollar is 5.30. Pause, if you want to do that, you can see a sterling pound versus US dollar, euro versus US dollar. Our example now is just Brazilian reais compared to US dollar, which is 5.30. What do you mean by that? Let's say I'm going to use 5.30 Brazilian reais to buy one US dollar. That's it. It is just the price of a currency in terms of another currency. If we depreciate the Brazilian real, we will need more reais to buy a dollar. How come? For example, if the exchange rate between Brazilian reais and dollar move from 5.30 to 5.50, we're going to need more reais to buy one US dollar, hence, the Brazilian real experience what we call a currency depreciation. It's not that difficult, but I'm still a bit confused. I think you are. Let's suppose an example. A Brazilian exporter. If you want to change for a British exporter or European exporter whatever it is, you just have to change the exchange rate. Might be euro against the dollar, sterling pound against the dollar, and so on. We are going to use an example of a Brazilian exporter, it's pretty much the same, wishes to export a bunch of goods that worth a 100 reais, that's the Brazilian currency. The current exchange rate is one. What I mean, one real buys one US dollar or we need, as we said, one real to buy one US dollar. The transaction will be like this, for example, your goods located in Brazil, a 100 reais, current exchange rate, one-to-one, you need one real to one US dollar. So the price you reach abroad is going to be 100 US dollars. Why? One hundred reais, one real to one US dollar, $100. It's pretty much easy. Definitely, this not looks like rocket science. But if you experience, for example, a currency depreciation of 20 percent, a currency depreciation of the Brazilian real of 20 percent, what does it mean? It means that now the exchange rate is 1.20. How come 1.20? You're going to need 1.20 real to buy one US dollar. Can you see how the currency, the Brazilian real has depreciated? You need more reais to buy you one US dollar. That's why we say the currency has depreciated. Back to our example in terms of exports, you still have 100 reais in Brazil to be exported. But now, the exchange rate is no longer one-to-one, but one to 1.20. You need 1.20 real to one US Dollar. A hundreds reais, 1.20 real to one US dollar, how much US dollar you are going to get? If you are a bit confused, try to use the rule of three. Then you figure out that 100 reais as the currency, the exchange rate is 1.20 reais to one US dollar is going to reach abroad at the price of 83.33 US dollar. How come 1.20 real, one dollar, 100 reais, x. You figure out that's going to be $83.33. Well, have you figured out how an exchange rate depreciation can help our exports to become more competitive? Previously, at exchange rate one-to-one, your 100 reais exports reached abroad at the price of $100. But after we depreciate the Brazilian reais by 20 percent or 1.20 real to one US dollar, our $100 exports reached abroad at ¢83.33, cheaper than before the exchange rate depreciation. What I mean, our exports become much more competitive abroad. Hence, you just reach a conclusion. It's pretty much straight forward. Currency depreciation actually improves the competitiveness of the country's exports. Well, sounds great. Since exports are part of my GDP, remember consumption, investment, government expenditure, and exports and as we said, exchange rate depreciation makes my export more competitive. Let's depreciate our currency by 90 percent. What's wrong? Shall we? Hold on, dude, don't go that far. Let's see in the next lesson when we're going to discuss about imports.
