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If by that you mean what happens if one country's currency appreciates relatively to the rest of the world, then country's exports sell less (because they become more expensive for the foreigner), while its imports increase (because they are cheaper now for the domestic consumer); thus the balance of trade is decreased (because the country is spending more on imports relative to its sales of exports).
Wiki User
∙ 13y ago
Wiki User
∙ 9y agoAs a country's exchange rate declines relative to other currencies the cost of its exports declines which typically increases demand for its products by other countries resulting in a positive trade balance. A weak currency also helps a nation achieve a positive trade balance since the cost of imports will increase thus decreasing demand for foreign products by its citizens.
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How do fluctuations to the international exchange rate of a nation's currency affect its balance of trade?
Helps the balance.
The open-economy macroeconomic model examines the determination of?
the trade balance and the exchange rate.
How does a country balance of payments affect the value of its currency?
can cause fluctuations in the exchange rate between its currency and foreign currencies.
What is the purpose of an exchange rate?
It's important to know the strength of the country's economy through the stability of exchange rate movement and the degree of change, and to know how the economy of the country's trade balance is during any movement of export s and imports. It's also affects the exchange rate on the purchasing power of the individual. In addition, exchange rate benefits by knowing the government policies wither economically or politically, as it affect stability in general and a stable exchange rate for the local currency against foreign currency.
What is forward rate?
Forward exchange rate is the agreed upon exchange rate to be used in a forward trade.
Why does Japanese currency have a weak exchange rate?
The Japanese currency has a weak exchange when compared to the major external currencies due to the difference in their trade balance and poor internal economic factors
How does the exchange rate affect Britain?
Exchange rate is depends on the rate of that country currency rates and gold!
Relationship between balance of payments and exchage rate system?
The balance of payments describes the relationship of import, exports, and their payment transactions between countries. How these payments are made and their value is closely related to the exchange rate system. In general, the real rate of exchange between two countries depends on their price levels and these price levels may vary through trade and production. However, nominal exchange rates depend on the level of trade to provide currency because the relative value of currencies depends on how much of one country's currency can be used to buy the currency or products of another. In general, since the balance of payments reflects this relationship of transaction, it directly influences nominal exchange rates and indirectly affects real exchange rates through trade.
What are the effects of balance of payments in relation to Zimbabwe?
If your country has higher level of inflation than major trading countries, the exports will be expensive and imports will be cheaper. Country's balance of trade will be affected and ultimate effect will be on the rate of exchange.
Which is more conducive to international trade the fixed or the floating exchange rate?
fixed rate
Factors affecting exchange rate?
government policy intrest rate parity balance of payment changes
Debate the relative merits of fixed and floating exchange rate regimes from the perspective of an international business what are the most important criteria in a choice between the systems?
Debate the relative merits of fixed and floating exchange rate regimes from the perspective of an international business what are the most important criteria in a choice between the systems? Which system is the more desirable for an international business?The case for fixed exchange rates rests on arguments about monetary discipline, speculation, uncertainty, and the lack of connection between the trade balance and exchange rates. In terms of monetary discipline, the need to maintain fixed exchange rate parity ensures that governments do not expand their money supplies at inflationary rates. In terms of speculation, a fixed exchange rate regime precludes the possibility of speculation. In terms of uncertainty, a fixed rate regime introduces a degree of certainty in the international monetary system by reducing volatility in exchange rates. Finally, in terms of trade balance adjustments, critics question the closeness of the link between the exchange rate and the trade balance. The case for floating exchange rates has two main elements: monetary policy autonomy and automatic trade balance adjustments. In terms of the former, it is argued that a floating exchange rate regime gives countries monetary policy autonomy. Under a fixed rate system, a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity. In terms of the later, under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, the IMF would agree to a currency devaluation. Critics of this system argue that the adjustment mechanism works much more smoothly under a floating exchange rate regime. They argue that if a country is running a trade deficit, the imbalance between the supply and demand of that country's currency in the foreign exchange markets will lead to depreciation in its exchange rate. An exchange rate depreciation should correct the trade deficit by making the country's exports cheaper and its imports more expensive. It is a matter of personal opinion in regard to which system is better for an international business. We do know, however, that a fixed exchange rate regime modeled along the lines of the Bretton Woods system will not work. Nevertheless, a different kind of fixed exchange rate system might be more enduring and might foster the kind of stability that would facilitate more rapid growth in international trade and investment. (cbapp.csudh.edu/depts/finance/hmilgrim/Business%20445/Chap010.PPT)
