How do exchange rates affect international trade and investments?

Exchange rates affect international trade and investments by influencing the cost of goods and services between countries. When a country's currency strengthens, its exports become more expensive for foreign buyers, potentially reducing demand. Conversely, a weaker currency makes exports cheaper and more attractive. For investments, exchange rate fluctuations can impact the value of foreign assets, with a stronger domestic currency reducing the value of foreign investments and vice versa. Investors must consider currency risk when investing internationally, as exchange rate movements can significantly impact returns on foreign investments.