TRADE BALANCE

The balance of trade and currency exchange rates are influenced by each other because it affects the supply and demand for foreign exchange. The price of the currency fluctuates in the world market when exports are not equal to imports. The price of one currency is described in terms of another when the values are determined in the international market which is why the Currency exchange rates are quoted as relative values.

TRADE BALANCE

The rising and falling value of the currency is determined by the supply and demand of the currency. When the demand is high, the value of the currency appreciates in value because the prices rise. Also, if a country imports less and exports more, there is a high demand for its goods and services which mean the currency will appreciate. If the scenario is the opposite of that, the value of the currency falls in the international market.

The currency depreciation also attracts foreign buyers to buy goods and services from the country; especially the raw material for production. In this way, foreign corporations can produce more with fewer costs. So, currency depreciation can also increase the number of exports which is why countries sometimes intentionally depreciate its currency.

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