Real and Monetary Side of International Economics

When we buy an imported commodity, say a famous brand automobile, we pay the amount in a foreign currency which refers to foreign exchange. When the domestic producer exports its products, he/she will be paid in foreign exchange. In these basic examples, we see monetary transactions as an integral part of international trade. Suppose that the foreign exchange rate increases within an economy. This increase in the foreign exchange rate can lead to an increase in the volume of exports and a decrease in the volume of imports of this nation. This simple example justifies how international monetary transactions affect international trade.