Emerging Markets Finance (On Page 214, Book 3 of Schweser) its, understand, countries, currency

hoangvu90

about Contagion;
Schweser says;
Contagion in currencies may occur for one of five reasons:
1. A country might devalue its currency to keep its exports competitive with another country who devalued.
2. A country might see its exports decline to countries in crisis.
3..
4..
5..
i can’t understand the reason 1 and 2.
anyone explain these two “reasons”?
i would appreciate your help!

yodacaia

1. if your currency is devauled, your goods are cheaper for other countries to buy, therefore exports should increase
2. if other countries are in crisis, I read this to mean a struggling economy, they are probably not going to make a lot of purchases from foreign countries, i.e. they won’t import as much. This would hurt those countries who rely on exports as their main source of income.
Hope this helps…

dotamasta

many thanks Pinto11 !

maratikus

I would add that countries in crisis may also see the values of their currencies depreciate due to weak economic fundamentals, and they would not be able to import as much due to the weakness in their currencies relative to the currency of the exporting countries. This will of course hurt the exporting countries economically.