The relationship between the Current Account Balance and Exchange Rates

The relationship between the Current Account Balance and Exchange Rates

Video Analysis for The relationship between the Current Account Balance and Exchange Rates

May 12, 2014

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The relationship between the Current Account Balance and Exchange Rates

A nation’s balance of payments measures all economic transactions between that nation’s people and the people of all other nations. A country that spends more on imports than it earns from the sale of its exports is said to have a trade deficit. Such imbalances have become controversial topics of debate in political and economic circles, particularly over the last decade as the Chinese economy has emerged as the world’s largest exporter.

As goods and services flow from one country to another, the exchange rates of those countries’ currencies tend to fluctuate to promote balanced trade between the two nations. However, in some cases, most notably China, a country’s central bank will intervene in the market for its own currency to manage its exchange rate against that of a trading pa...



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