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Exchange Rate Adjustuments

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Understand the power of economics in a global context, evaluate the impact of exchange rate adjustments and their effects on the balance of payments. Select a current exchange rate practice and explain the economic factors that influence that practice. Please provide references to support your efforts.

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This solution explains exchange rate adjustments and their impact on balance of payments. The sources used are also included in the solution.

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The balance of payment figures say what is being spent by consumers and firms on imports of goods and services and how successful have firms been in exporting to other countries. When exchange rate adjustments take place they affect balance of payments. For example, if there is devaluation of the official exchange rate under conditions of less than full employment, the domestic goods become cheaper in the world markets. This makes domestic goods attractive in the foreign markets and the exports of these goods increase. At the same time with devaluation, the foreign goods sold in the domestic market become costlier. This makes foreign goods less attractive in the domestic market. This reduces the imports of the country. With an increase in the ...

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