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Trade Surplus and Currency Value

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What is the impact of a trade surplus? What is the impact of a trade deficit? How do trade deficits and trade surpluses affect the firm you work for?

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This solution discusses the effect on currency of a trade surplus in 460 words.

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A trade surplus generally causes the currency to rise in value. This is because when a nation's customers pay in their currencies for that nation's exports, the exporting nation must convert all that foreign currency into the local currency for the surplus to be of any use. This increases the overall demand for that currency and as the exporter than recycles that foreign currency into the world foreign exchange market, that increase the supply of those currencies, which adds to the relative increase in the exporting country's currency. When a country's currency becomes more valuable relative to other currencies, then it's exports become more expensive, which can then effect the country's export ...

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