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How does a country balance of payments affect the value of its currency?
Wiki User
∙ 13y ago
can cause fluctuations in the exchange rate between its currency and foreign currencies.
Antonia Bins
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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.
How will increase in exports affect balance of payments in a developing country?
increase in exports means that other countries are demanding goods from your coutry. hence, more money flows in.
What are the effect of dollarization in developing country?
since dollarization replaces country's currency, it will lead to depreciation of local currency. Investors wont find it worth investing in a country with falling local currency as it will fetch them no good return. Also, it will affect our export. Import would be expensive.
What are causes of adverse balance of payment?
Causes of DisequilibriumVarious causes of disequilibrium in the balance of payments or adverse balance of payments are as follows: 1. Development Schemes:The main reason for adverse balance of payments in the developing countries is the huge investment in development schemes in these countries. The propensity to import of the developing countries increases for want of capital for industrialization. The exports, on the other hand, may not increase because these countries are traditionally primary producing countries. Moreover the volume of exports may fall because newly created domestic industries may need them. All this leads to structural changes in the balance of payment resulting in structural disequilibrium.2. Price-Cost Structure:Changes in price-cost structure of export industries affect the volume of exports and create disequilibrium in the balance of payments. Increase in prices due to higher wages, higher cost of raw materials, etc. reduces exports and makes the balance of payments unfavorable.3. Changes in Foreign Exchange Rates:Changes in the rate of exchange is another cause of disequilibrium in the balance of payments. An increase in the external value of money makes imports cheaper and exports dearer; thus, imports increase and exports fall and balance of payments become unfavourable. Similarly, a reduction in the external value of money leads to a reduction in imports and an increase in exports.4. Fall in Export Demand:There has been a considerable decline in (he export demand for the primary goods of the underdeveloped countries as a result of the large increase in the domestic production of foodstuffs raw materials and substitutes in the rich countries. Similarly, the advanced countries also find a fall in their export demand because of loss of colonial markets. However, the deficit in the balance of payment due to the fall in export demand is more persistent in the underdeveloped countries than in the advanced countries.5. Demonstration Effect:According to Nurkse, the people in the less developed countries tend to follow the consumption patterns of the developed countries. As a result of this demonstration effect, the imports of the less developed countries will increase and create disequilibrium in the balance of payments.6. International Borrowing and Lending:International borrowing and lending is another reason for the disequilibrium in the balance of payments. The borrowing country tends to have unfavourable balance of payments, while the lending country tends to have favourable balance of payments.7. Cyclical Fluctuations:Cyclical fluctuations cause cyclical disequilibrium in the balance of payments. During depression, the incomes of the people in foreign countries fall. As a result, the exports of these countries tend to decline which, in turn, produces disequilibrium in the home country's balance of payment.8. Newly Independent Countries:The newly independent countries, in order to develop international relations, incur huge amounts of expenditure on the establishment of embassies, missions, etc. in other countries. This adversely affects the balance of payments position.9. Population Explosion:Another important reason for adverse balance of payments in the poor countries is population explosion. Rapid growth of population in countries like India increases imports and decreases the capacity to export.10. Natural factors:Natural calamities, such as droughts, floods, etc., adversely affect the production in the country. As a result, the exports fall, the imports increase and the country experiences deficit in its balance of payments.
What are the various factors which affect exchange rate?
When a country exports goods that other countries want to import, that makes their currency valuable. The balance between imports and exports affects the exchange rate. Since this is also a matter that concerns investment, people will be more likely to buy a currency based upon their confidence in the country that issues it. So a whole national economy is assessed.
How does Tourism Revenue affect the Balance of Payments of a national government?
A surplus in the balance of payments is when a nation has an increase in flow of funds from trade and investments coming in than paying out to other countries. Income from tourism increases the flow of funds into the economy from people of other countries. It results in the flow of foreign currency into the country and is a revenue to the country resulting in a favorable balance of payment.
What would a multinational company do to affect a country's balance of payments?
Change prices is the most important factor a multinational company can do.
How do fluctuations to the international exchange rate of a nation's currency affect its balance of trade?
Helps the balance.
How will increase in exports affect balance of payments in a developing country?
increase in exports means that other countries are demanding goods from your coutry. hence, more money flows in.
If you have a credit card with a balance and you haven't used it in a year and cancelled it would that have a negative affect on your credit rating?
Not as long as you don't default in the payments.
What are the effect of dollarization in developing country?
since dollarization replaces country's currency, it will lead to depreciation of local currency. Investors wont find it worth investing in a country with falling local currency as it will fetch them no good return. Also, it will affect our export. Import would be expensive.
What are the three factors that affect currency values?
A floating currency exchange rate is affected by international supply and demand. Ex: If demand for Euros exceeds supply then the value of the specific currency will go up and vice versa. Trillions of money is exchanged in markets daily for many reasons including Inflation Rates, Interest Rates, Trade Balances etc.
Why is a balance of payment important and why does it balance?
Given that it reflects all payments and liabilities to foreigners and all payments and obligations received from foreigners, the balance of payments is one of the major indicators of a country's status in international trade. It has the potential to influence the prices of free-floating currencies, because free-floating currencies are affected not only by political events or governmentpolicies but also by the economic events represented by the BOP. As every country strives to a have a favorable balance of payments, the trends in, and the position of, the balance of payments will significantly influence the nature and types of regulation of export and import business in particular. BOPS statistics (at least estimates of major items) are regularly compiled, published and are continuously monitored by companies, banks and government agencies. Often we find a news head line like "announcement of provisional US balance of payment figures sends the dollar tumbling down". Obviously the BOP statement contains useful information for financial decision matters. In the short run, BOP deficits or surpluses may have an immediate impact on the exchange rate. Basically BOP records all transactions that create demand for and supply of a currency and the possible impact on the exchange rate. Further they may signal a policy shift on the part of the monetary authorities of the country, unilaterally or in concert with the trading partners. For example a country facing a current account deficit may raise interest rates to attract short-term capital inflow to prevent depreciation of its currency. Or it may tighten credit and money supply to make it difficult for domestic banks and firms to borrow the home currency to make investments abroad. It may force exporters to realize their export earnings quickly and bring the foreign currency home. Countries suffering from chronic deficits may find their ratings being downgraded because the markets interpret the data as evidence that the country may have difficulties in servicing its debt. Finally BOP accounts are intimately connected with the overall saving -investment balance in a country's national accounts. Continuing deficits and surpluses may lead to fiscal and monetary actions designed to correct the balance, which in turn will affect exchange rates and interest rates in the country. Therefore BOP accounting serves to highlight a country's competitive strengths and weaknesses, and helps in achieving balanced economic-growth. It can significantly affect the economic policies of a government, and the economy itself
What are causes of adverse balance of payment?
Causes of DisequilibriumVarious causes of disequilibrium in the balance of payments or adverse balance of payments are as follows: 1. Development Schemes:The main reason for adverse balance of payments in the developing countries is the huge investment in development schemes in these countries. The propensity to import of the developing countries increases for want of capital for industrialization. The exports, on the other hand, may not increase because these countries are traditionally primary producing countries. Moreover the volume of exports may fall because newly created domestic industries may need them. All this leads to structural changes in the balance of payment resulting in structural disequilibrium.2. Price-Cost Structure:Changes in price-cost structure of export industries affect the volume of exports and create disequilibrium in the balance of payments. Increase in prices due to higher wages, higher cost of raw materials, etc. reduces exports and makes the balance of payments unfavorable.3. Changes in Foreign Exchange Rates:Changes in the rate of exchange is another cause of disequilibrium in the balance of payments. An increase in the external value of money makes imports cheaper and exports dearer; thus, imports increase and exports fall and balance of payments become unfavourable. Similarly, a reduction in the external value of money leads to a reduction in imports and an increase in exports.4. Fall in Export Demand:There has been a considerable decline in (he export demand for the primary goods of the underdeveloped countries as a result of the large increase in the domestic production of foodstuffs raw materials and substitutes in the rich countries. Similarly, the advanced countries also find a fall in their export demand because of loss of colonial markets. However, the deficit in the balance of payment due to the fall in export demand is more persistent in the underdeveloped countries than in the advanced countries.5. Demonstration Effect:According to Nurkse, the people in the less developed countries tend to follow the consumption patterns of the developed countries. As a result of this demonstration effect, the imports of the less developed countries will increase and create disequilibrium in the balance of payments.6. International Borrowing and Lending:International borrowing and lending is another reason for the disequilibrium in the balance of payments. The borrowing country tends to have unfavourable balance of payments, while the lending country tends to have favourable balance of payments.7. Cyclical Fluctuations:Cyclical fluctuations cause cyclical disequilibrium in the balance of payments. During depression, the incomes of the people in foreign countries fall. As a result, the exports of these countries tend to decline which, in turn, produces disequilibrium in the home country's balance of payment.8. Newly Independent Countries:The newly independent countries, in order to develop international relations, incur huge amounts of expenditure on the establishment of embassies, missions, etc. in other countries. This adversely affects the balance of payments position.9. Population Explosion:Another important reason for adverse balance of payments in the poor countries is population explosion. Rapid growth of population in countries like India increases imports and decreases the capacity to export.10. Natural factors:Natural calamities, such as droughts, floods, etc., adversely affect the production in the country. As a result, the exports fall, the imports increase and the country experiences deficit in its balance of payments.
What are the various factors which affect exchange rate?
When a country exports goods that other countries want to import, that makes their currency valuable. The balance between imports and exports affects the exchange rate. Since this is also a matter that concerns investment, people will be more likely to buy a currency based upon their confidence in the country that issues it. So a whole national economy is assessed.
How does the exchange rate affect Britain?
Exchange rate is depends on the rate of that country currency rates and gold!
How does a country's currency affect tourism?
A country's currency which has declined, makes it less expensive for tourists to travel there. That said, for example, if Spain's currency has been devalued in comparison to a tourist who lives in the USA, there is a better chance of tourists visiting Spain. Tourist dollars help the country to attract tourists.
