Properly oxygenated blood helps you breathe better both when at rest and when enjoying cardiovascular exercise and sports. Your cells, too, "breathe" better - cellular respiration (the conversion of energy to fuel your body can use) depends on your electrolytes being balanced, and your body has enough water to create energy. Your heart is more efficient and your lungs better able to take in deeper breaths when you're fully hydrated. Cardiovascular exercise when you're dehydrated can result in greater mucus production, which inhibits breathing.
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