International trade is a complex area of study. Effects of policies, currencies, tariffs, trading arrangement, and other variables not only impact a country but a region and the global economy. Examine the monetary aspects of international trade. Explain two monetary effects for balance of payment, foreign exchange, and exchange rate determination.
If there is a change in the monetary policy, there will be a monetary effect. This effect will impact the balance of payments. For instance if there is monetary expansion, the real interest rates decrease, this makes domestic financial and capital assets less attractive. Foreigners sell off domestic bonds/stocks/ assets. The financial account deteriorates and the balance of payments becomes adverse.
The second effect of an expansionary monetary policy is that because of lower real interest rates domestic investors will also ...
This solution explains monetary effects on balance of payments, foreign exchange, and exchange rate determination. The sources used are also included in the solution.