What happens to home stock market if its home currency depreciates with respect to other world currency?
If Home’s currency depreciates, the rate of return on Home’s assets (T-bills, bonds, stocks, etc.) would drop also, making their assets less valuable. Consequently, investors will now shift their funds from domestic assets to foreign assets where they can gain higher returns. As a result, the stock market takes a downturn, and if the drop is substantial enough, job losses will occur, GDP growth will stagger and so will economic growth, which will cause consumer confidence to decline considerably. This is how a recession can begin. Currency valuation definitely does have dynamic effects on the stock market. Hope this helps you!
