Examining the Implications for an Economy of a Rising Exchange Rate

The current account is one of the components of the Balance of Payment together with the capital and financial account and the reserve assets account. This represents the difference between a country’s savings and its investment and it is defined as the sum of the payments of goods and services bought from foreigners, net income from abroad and net current transfers. When the current account is in deficit, it means that the country’s net sales abroad value is negative, while it is in surplus when this value is positive. The current account must balance, so surplus of one nation means deficits of another.

Now, we want to take back general equilibrium (short run to medium run). The goal is the AS makes to upward and Yn=Yn. When the economic situation which is supply shock. The supply shock is ‘unexpected

I first describe the forces behind the movements in the exchange rate through macroeconomic model. I, then, use these models to suggest an exchange rate policy for the US economy that can help its transition from the Great Recession.

Fixed exchange rates are also known to cause a disparity in the current account otherwise known as an imbalance meaning if there is an exchange rate that is said to be over valued it will cause a current account deficit

In this paper I will be going over and discussing what international finance, exchange rates and also balance of payments. I will be talking about what they are, what they do, and how they affect us an economy and country. I will be discussing the basic definitions, and the basic concepts of their duties. First I will be going over international finance and the role it plays in our daily lives. Then I will discuss the price differences between items in the United States and Germany. I will add and compare them together. I will also go over what the concept balance of payments are.

imports, over some period of time. If a country imports more than it exports, its balance

The main consequence of an exchange rate fluctuation for international trade is the risk for an exporter or an importer that the cost of foreign currency applied in business volumes will differ from the hoped and calculated. An exposition to foreign currency and a currency risk can make additional profits, and not just losses. However, being in an exposition to currency means relying on a case and most of businesspersons prefer not to allow their company being sensitive to unexpected changes. Therefore, the entities find methods of minimizing or complete elimination of exposition to foreign currency to plan business transactions and to predict profit more authentically (Frieden & Lake 20).

Q3.Exhchange rate is the value of one currency toward another. In case if the currency of pound for instant decrease (weaken), therefore, all their export of goods will become cheaper. On the other hand, if UK want to import from outside USA they have to pay more to import products and services. When the services and product of UK is cheaper than the United States, therefore, it will arm wrestle UK to increase export volume. Which will lead to have a surplus of international balance of payment. In return the other country which import goods from UK will focus on importing cheaper goods than exporting which will lead to a deficit to their international balance of payment. For example in 2011 the value of £1 = $1.65 which it means the value of pound decreased, which leads to import goods from UK really expansive and also traveling outside, with that the exporting was the best option for outside countries like US to buy a cheap goods from UK.

$1.00US bottle of Coke for 4 pesos, and today must pay 7 pesos for the same $1.00US bottle of

Mark (2006) in a board of 46 center return and emerging market countries during the period 1980-2005 for examining the force of nominal exchange rate movement on the balance of trade, suggested that the reaction of a country’s balance of trade depends a lot on the market formation of its exports. This mostly was decided on whether it mostly exports goods for which there are extremely flexible demands at a known price or

With a fixed exchange system, a country may face a persistent surplus or deficit. To deal with a persistent surplus, government can increase home demand in order to encourage import, or raise home price to make export less competitive. To deal with a persistent deficit, government can reduce the home demand or decrease home price to make export more competitive. If both of measures inefficient, the only way of influence the exchange rate is to change the exchange rate. If countries with surpluses move their value of exchange rates higher, it will be revalue, if countries with deficit decrease their value of exchange rate, it will be devaluation.

Though the exchange rates between the dollar and other country’s currency fluctuates monthly, it was a gradual change over the past two years against the YEN, EURO, and MXN. The exchange rate between USD and GBP was the most volatile change over the two year period. Overall, the USD has strengthened against the YEN, EURO, MXN, and GBP since June of 2014 (Prakken &

Again XYZ can improve its balance of payment account if the economy is protected. By restricting imports, a country may try to improve its balance of payments position. The developing countries, especially XYZ, may have the problem of foreign exchange shortage. Hence, it is necessary to control imports so that the limited foreign exchange will be available for importing the necessary items. In developing countries, generally, there is a preference for foreign goods. Under such circumstances it is necessary to control unnecessary imports lest the balance of payments position become critical.

Exchange rate risk is faced by businesses and investors due to change in exchange rates. An exporter is likely to experience shrinking sales, gross margins or both when domestic currency appreciates or foreign currency depreciated. The impact of fluctuation in exchange rates has significant impact on SMEs. In general, when the domestic currency appreciates, importers benefit and exporters are adversely impacted and vice versa. However, the impact varies from sector to sector. Furthermore, the ability of different sectors to withstand the impact is not the same. For instance, the IT sector having higher margins than the handicrafts sector, can relatively withstand the adverse impact of the appreciation of the rupee to a greater level.

Over the past two years, the US Dollar has been strengthening against major global currencies. With US Dollar being the most popular currency for international deals, a stable US Dollar helps in trade. Hence it is necessary to understand the impacts of the increasing strength of US Dollar. The rise of US Dollar in March of 2015 was the fastest rise in 40 years (Gillespie, 2015). And with the US Dollar still strengthening and post the election results, it really would be interesting to see the impact of the rising US Dollar on trade. This paper deals with the various impacts of rising level of US dollars has on the US economy.