International Financial markets
Video 1: Executive Summary
The payments balance of a state offers a measure of all the transactions economically amid the state’s individuals and persons from different states. The trade deficit is the state that is achieved after a state spends more of its imports as compared to exports sales earnings (Welker, 2012). These are some form of economic, political as well as social imbalances which has risen in the recent decade while the Chinese economy has risen to be the largest in trade deficit worldwide. With the flow of commodities and services from one state to a different one, the States exchange rate usually fluctuates in the promotion of trade balance amid the two countries. However in some instances which can best be acquired from China’s scenario the central bank of any country is bound to make a market intervention in regard to its currency so that the rate of exchange can be managed against the one depicted by the trading state. In the occurrence of such interventions, the moderating impact that is caused by the hiking and falling of the rate of exchange is usually disrupted thus the imbalances becomes consistent (Welker, 2012). According to Welker, (2012), it is apparent that trade flow results in depreciation or appreciation of a country’s currency in reference to the exchange rate. For instance, China spends more on imports to the United States than it receives as an export from America which creates negative a negative trade. This trend has retained the U.S dollar to be particularly strong as compared to Chinese currency based on the increase of supply of exports from the Chinese market. If an increase of goods produced goods rises in U.S this means that its RMB currency will increase while that of the dollar depreciates. Therefore in order for a trade and currency balance to be achieved import and export earnings of a country must be balanced.
Video 2: Executive Summary
Foreign exchange is a currency market where foreign currencies are supplied and bought. McGlasson, (2010), asserts that the demand and supply must be there which is driven by several reasons. To begin with, foreign money is required in tourism and travel, investment in foreign countries or acquiring services and goods. For instance, in the recent years, a number of movies have been produced in New Zealand which implies that this may increase the demand for tourists to visit the state. The individuals will require the state’s currency during their visits. When the demand for a certain currency increases the value of that currency appreciates. When an appreciation to a certain currency increase this means that the value of the supplying currency reduces. Currency value can be manipulated by the government in order to increase its value through reducing the general supply. This trend helps in maintain a favorable balance of trade by ensuring that the state's goods are offered at relatively lower process while those of foreign states becomes expensive thus lowering the foreign value demand (McGlasson, 2010). The trade balance is a requirement for obtaining economic development in that the state tends to depend on the acquired earnings acquired from an investment. This has been the case of the U.S dollar which has maintained its strength based on the fact that the state tends to offer increased dollar supply to most foreign state and since its demand is usually high. This creates a balanced rate of exchange in its attempt to balance import as well as export earnings.
References
Mary J. McGlasson. (2010). Macro- Episode 33: Exchange Rates. Retrieved from https://www.youtube.com/watch?v=xwtgByffoUw
Welker, J. (2012). The Relationship between the Current Account Balance and Exchange Rates. Retrieved from https://www.youtube.com/watch?v=cg17YTtsk2U
