What are imports and exports?

Imports are goods and services that are purchased by residents of a country from other parts of the world instead of buying domestically produced items. Imports lead to the outflow of funds from the country because import transactions involve payment to sellers residing in another country.

Exports are goods and services that are produced domestically but then sold to customers in other countries. Exports lead to the inflow of capital into the seller’s country because export transactions involve the sale of domestic goods and services to foreign buyers.

A country’s import and export activities can affect GDP, exchange rates, inflation rates and interest rates.

Increasing the level of imports and the growing trade deficit can have a negative impact on a country’s exchange rate.

A weaker domestic currency stimulates exports and makes imports more expensive. Conversely, a strong domestic currency prevents exports and imports from becoming cheaper.

Higher inflation can also affect exports by having a direct impact on input costs such as materials and labor.