Weak Currency

Posted in Finance, Accounting and Economics Terms, Total Reads: 739
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Definition: Weak Currency

A currency whose value is depreciating over time as compared to other currencies is said to be a weak currency. The strength of a currency is a relative measure. In the long run, a country with robust economy has a strong currency while an economy with fundamental weakness will have a weak currency.


Currency is a commodity; its value is determined by its demand and supply. When we exchange dollar for rupee, we are selling our dollar to buy rupee. So if demand increases, value of currency will go up. If more people want to buy rupee, price of rupee will go up and rupee is described as the strong currency. Currency can be traded as stocks in free markets. The countries with weak currency in international foreign exchange market have more supply than demand for its freely traded currency. Demand of a nation's money is dependent on many factors like interest rates, demographics, GDP growth, political situations, trade sanctions and others.


Countries with temporarily weakening currency provide pricing advantage to exporters. If for example dollar weakens, it means we spend fewer rupees to buy a dollar. This also implies that the American goods are now cheaper to buy, so exports will boost while imports will have to cop up with the weakening economy.

 

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