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Currency Exchange July 14, 2010

Posted by petrarcanomics in Role of Government.

Current Account and Capital Account

The current account and capital account measure the balance of payments between imports and exports. When incurring a current account deficit, the capital account must  balance this deficit off with a combination of capital inflows and official reserves to cause the balance of payments to revert back to zero.

For more on this, see Reffonomics: U.S. Balance of Payments.

Currency Exchange

When a citizen or company of one country wants to purchase goods in another country, it must make an exchange of their own currency for the currency of the other country. For example, if an American consumer wishes to purchase a Japanese automobile, said consumer must exchange dollars for yen. Currency exchange rates play a large role in affecting the affordability of goods traded across national boundaries for how exchange rates work.

For more info on this, see Reffonomics: Currency Exchange Interactive, Currency Exchange Multiple Choice Quiz, Exchange Rates

Strengths and Weaknesses of Currency

A strong currency:

  • will increase imports and decrease exports
  • will make foreign travel and the purchase of foreign assets much cheaper

A weak currency:

  • will decrease imports and increase exports
  • will make foreign travel and the purchase of foreign assets more expensive



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