107. Fundamentals that Move Currencies - Balance of Payments
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the current account deficit in theory should decrease as exports become cheapear. however, for the US that is not the case since we import a lot more and don't have a manufacturing base. because we import a lot more and pay in USD's this results in foreigners holding more USD reserves which can result in capital inflow into the US, over the long run this deteriorates the USD purchasing power thus causing price rises domestically and lack of confidence in the USD. let me know what you think.
3 years ago 3
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in the las`t lesson..:):)
All Comments (16)
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yep, us exports will grow as USD weakens. but overall there are other reasons why USD strong is better for US economy - its a sign of confidence
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Not exactly whats happening in Japan right now. Bank rates are near zero, foreign investments are reducing, people are taking their money out, yet the Yen is only getting stronger. between the time you did the video and now, the US has gone through some tough times. So a strong Yen is because of a weak dollar. Currency strength is relative, especially so when trading as you are looking currency pairs and not a single currency. I am open to correction, though.
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I think the answer is : As USD deppreciates then that automatically implies an increase in the demand for American Exports since they will now be cheaper. Consequently if there will be eventually more exports than imports then the current account deficit will be gradually a current account surplus.
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Do you have any videos that explain the role of the financial account in the balance of payments?
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you could almost be singing that
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hi joshrain1, Thanks for posting that is a well thought out answer which is moving in the right direction. While it is true that the US is the worlds largest importer the country is also one of the worlds largest exporters. Much of the exporting power that has been lost in manufacturing has been made up for in exports of services so as a result the current account deficit is slowly starting to decrease as the dollar weakens and exports have picked up significantly. Best Regards, Dave
InformedTrades 3 years ago