Assess the relationship between the balance of payments framework and Essay

Assess the relationship between the balance of payments simulation and exchange rate - Essay ExampleFor example, if there is U.S. dollar devaluation against other international currencies, then the unite States exports will augment, and imports will reduce (Moffett, Stonehill & Eiteman, 2011).In turn, this will lead to surplus in the accredited account, thence enhancing balance of payments. A higher exchange rate makes a nations imports cheaper and exports more dearly-won in international markets. A higher rate of exchange may be anticipated to demoralize balance of trade of a country, whereas a lower rate of exchange would augment it. There is a higher correlation between exchange rate, inflation and interest rates. In order to stimulate frugal growth, monetary authorities change interest rates, thus affecting exchange rates and inflation. Higher rates of interest lure foreign investment and cause rate of exchange to increase. When there is a current account deficit, countrie s tend to increase the demand for foreign coin. Increase in demand of overseas currency lowers the exchange rate (Connolly,