Exchange rates are important because they affect a country's balance of payments, or BOP. Here’s how they work in different areas:
Current Account: When a country's money loses value, its exports (goods sold to other countries) get cheaper. Meanwhile, imports (goods bought from other countries) become more expensive. This can help the current account balance get better. For example, when the U.S. dollar went down in value by about 10% in 2015-2016, exports increased by around 3-4%.
Capital Account: Changes in currency value can also impact how much money is invested in a country. If a country's money is strong, it may be more expensive for other countries to invest there. This can negatively affect the capital account, which tracks these investments.
Statistical Data: In 2022, the World Bank reported that the U.S. had a current account deficit (more money going out than coming in) of $948 billion. This was partly because the dollar was getting stronger, which caused exports to decrease by 5%.
In short, when exchange rates change, they have a big impact on the balance of payments.
Exchange rates are important because they affect a country's balance of payments, or BOP. Here’s how they work in different areas:
Current Account: When a country's money loses value, its exports (goods sold to other countries) get cheaper. Meanwhile, imports (goods bought from other countries) become more expensive. This can help the current account balance get better. For example, when the U.S. dollar went down in value by about 10% in 2015-2016, exports increased by around 3-4%.
Capital Account: Changes in currency value can also impact how much money is invested in a country. If a country's money is strong, it may be more expensive for other countries to invest there. This can negatively affect the capital account, which tracks these investments.
Statistical Data: In 2022, the World Bank reported that the U.S. had a current account deficit (more money going out than coming in) of $948 billion. This was partly because the dollar was getting stronger, which caused exports to decrease by 5%.
In short, when exchange rates change, they have a big impact on the balance of payments.