How do the high interest rates in developed countries affect developing countries ability to trade?

Question

help! stuck on question, dont know where to start!!!

Answer 1

High interest rates attracts capital to the developed countries, increase the value of their currency and so will produce a trade deficit in the developed countries. that is the will import more than the export. These excess imports will come from developing countries so it will increase their exports.
Note:China's and Japan's trade surplus with developed countries is maintained by their purchase of our bonds with their trade surplus

Answer 2

meg's argument makes sense, but I guess mainly in case of US due to high level of dollarization around the world. On the other hand one may also take into consideration the following effect - domestic population may choose to invest (save) more than to consume (reducing the amount of goods consumed and thus that of import as well). Also it depends much on the type of interest rate - for borrowing or lending - since spread can vary across the countries. One more thing - I'm not sure about Japan, but I think China's trade surplus with the US is greatly determined by the fact that they regulate their exchange rate.

Answer 3

They don't, the World Bank gives very low terms to under developed countries.
The problem is, like here in the Philippines, the Peso here is only worth a little over two cents American and if it drops, we have to pay more Pesos to repay the loan.
The reason for that is, the money is loaned out as American dollars, not the denomination of your own country.
Actually, the value of your dollar is what affects a countrie's ability to borrow or pay back a loan, not inflation in other countries.
The more American dollars we have, the less it is worth and we can pay easier, but if we buy a lot of imports, using those American dollars, our reserve gets low and we have to pay more Pesos to buy the dollar.

Answer 4

Not sure if this helps at all. We get 18.5% interest in our YTL account (Turkish) which seems good, inflation however eats into this. The YTL is strong at the moment against GBP and USD but, in my veiw it could all go pear shaped pretty soon if Turkey goes to war against PPK.
What I fail to understand is that the US allow their currency to remain so deppressed.