Reference no: EM131884958

Problem

The currency depreciation means the loss of value of country's currency with respect to one or more currencies or it is typically the fluctuation of the country's currency to the foreign one in which not official currency is maintained. The country of choice is Kenya where 1USD= 101.800KES OR IKES= 0.00982313USD. The depreciating Kenyan currency is due to political tension resulting from last year's election. Secondly, capital tax gain as introduction of a 5% on tax on all income from sales on shares had a negative impact on Nairobi Security Exchange as well as property has had a negative impact on seasonal foreign investors in the country and lastly the insecurity in Kenyan borders also has led to the decline in the strength of Kenyan shilling.

The depreciating shilling has a negative effect on American imports to Kenyan business men who are importing; Depreciating Kenyan currency makes it expensive to buy foreign currency with which to pay for foreign goods leading to less of import activity and lead to upward pressure on the home price level as the foreign goods on the component of market basket used to calculate the market level. Furthermore the cost on importing American goods requires those in Kenya to spend more as they will be required to convert their currency (Kenyan shilling) to U.S dollars. This is contrary to purchases of home country goods by foreigners where the exports become more cheap since the home country has become less expensive to the foreign currency as it is easy to obtain but this depreciation of Kenya currency can have a positive effect on the sale that small business make to American people because the currency converts to more Kenyan shillings making them to buy more and they benefit only if they accept payment in American dollars.