ECONOMICS
BALANCE OF TRADE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It will appreciation because of an increase in demand for it’s currency.
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It will depreciate because of a decrease in demand for it’s currency.
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It will appreciate because of an increase in supply for it’s currency.
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It will depreciate because of an decrease in supply for it’s currency.
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Detailed explanation-1: -In a recession, inflation will be higher than in normal times. In times of economic uncertainty, more people will hold cash instead of spending it. This creates a substantial negative balance in the economy, and since the economy uses cash to measure its output, it will flood the market with currency.
Detailed explanation-2: -Central banks will undoubtedly move interest rates to try to revitalise the economy during a recession, which influences the value of currencies. If a country cuts interest rates then this generally lowers the value of the respective currency, while higher interest rates increase the currency’s value.
Detailed explanation-3: -Economic effects Thus, depreciation of a currency tends to increase a country’s balance of trade (exports minus imports) by improving the competitiveness of domestic goods in foreign markets while making foreign goods less competitive in the domestic market by becoming more expensive.
Detailed explanation-4: -Economic fundamentals, interest rate differentials, political instability, or risk aversion can cause currency depreciation. Orderly currency depreciation can increase a country’s export activity as its products and services become cheaper to buy.