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"Assume that Country A and Country B use different floating currencies and trade exclusively with one another. There is a revaluation (appreciation) of Country A's currency against Country B's currency. Assume that just prior to the revaluation, Country A and Country B have a perfect balance of trade, where each country imports the exact same value of goods and services from the other. Holding all else constant, what is the most likely impact of the revaluation of Country A's currency on the balance of trade between the two countries?"

   

Country A will develop a trade surplus while Country B will develop a trade deficit.
   

Country B will develop a trade surplus while Country A will develop a trade deficit.
   

Country A will develop a trade surplus in the short term while Country B will develop a trade surplus in the long term.
   

Because a simple change to the value of a currency is not likely to affect the balance of trade between two countries, the two countries will keep a perfect balance of trade.

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Related questions

QUESTION 7

Suppose there are only two countries in the world, Country A and Country B. The following table contains information on each country's demand and supply of some good.

  Country A Country B
Demand Q = 107 - 2P Q = 167 - 1P
Supply Q = 1P - 28 Q = 3P - 17

If there is free trade between these two countries, what would be the quantity of Net Exports in Country A?

Round your answer to two decimal places. Remember, Net Exports is Exports - Imports. If your answer is negative, be sure to include the negative sign.

QUESTION 8

Suppose there are only two countries in the world, Country A and Country B. The following table contains information on each country's demand and supply of some good.

  Country A Country B
Demand Q = 187 - 1P Q = 137 - 3P
Supply Q = 3P - 14 Q = 3P - 26

If there is free trade between these two countries, and this is the only good in which these two nations trade, what would be the value of Country B's Trade Balance?

In this module, we have learned that the trade balance, interest rates, and exchange rates are all related in an economic and fiscal policy. For decades, the United States and China have traded products through imports and exports, and for the most part, China is able to produce items at a lesser cost than the United States. Americans love a good value, but they also want quality. China, on the other hand, has grown dramatically and continued with “industrializing” the country, which has cost the government billions of dollars. Throughout this course, we will investigate the ongoing trade between these two countries, the costs of multinational companies that expand or complete business through the import and export exchange, and how the ongoing practice may create economic changes and instability for the individual organization.

Research the balance of trade in the United States and China and relate how historical changes in exchange and interest rates have affected imports and exports between the two countries.

Specifically address the following:

Explain how trade balance, interest rates, and exchange rates are related, and cite an example of how a rise or fall in one changes the others.

Does a deficit in China or the United States change the overall advantage or disadvantage of trade? Why?

Explore how the cost and quantity of imports and exports, such as electronic equipment, may be challenged by the rise and fall of these rates.

Incorporate the fluctuations of supply and demand into the costs incurred and decide ways management calculates estimations for further product needs.

Explain the philosophy of “international crowding out,” citing an example of how this may occur, and describe how excessive borrowing in one country has affected interest rates in the United States.

As an example, China and the United States “borrow” from each other to finance needs by purchasing government-backed securities from the other country. This practice provides one country with additional funds and also gives the purchasing country more control over interest rates or “borrowing costs” in the future. How does this influence interest rates in the domestic country and foreign country? Can one country gain control over another financially by continually financing another country’s debt?

5-

In the short run, a tighter monetary policy by the U.S. Federal Reserve leads to:

Select one:

a. an increase in the supply of dollars and a dollar depreciation.

b. a decrease in the supply of dollars and a dollar appreciation.

c. an increase in the demand for dollars and a dollar depreciation.

d. a decrease in the demand for dollars and a dollar appreciation.

6-

Which theorem states that exchange rates will adjust until the prices of goods in different countries approximate one another?

Select one:

a. purchasing power parity

b. the law of multiple prices

c. the principle of comparative advantage

d. dollarization

7-

A country's balance of trade is the difference between its:

Select one:

a. nominal and real exchange rates.

b. monetary and fiscal policy.

c. exports and imports.

d. capital inflow and capital outflow.

8-

When a foreign business buys stock in a U.S. company, the U.S. capital account will:

Select one:

a. move in a positive direction.

b. move in a negative direction.

c. remain unchanged.

d. become more volatile.

9-

Saying that the United States is running a large current account deficit is equivalent to saying that:

Select one:

a. exports exceed imports in the United States.

b. the United States is running a large capital account surplus.

c. the balance of payments is negative.

d. the value of the current capital stock in the United States exceeds the value of future capital flows.

10-

An increase in the demand for a country's exports will have what effect on its currency?

Select one:

a. Its value will not change.

b. Its value will increase.

c. Its value will decrease.

d. Its value will depreciate.

11-

When the United States has a current account deficit, the U.S. capital account:

Select one:

a. will have a deficit also.

b. will be balanced.

c. will have a surplus.

d. must be falling.

12-

Which of the following is NOT a way that a country can finance a trade deficit?

Select one:

a. increased borrowing

b. sale of assets

c. decreased exports

d. reduction in cash reserves

13-

A trade deficit occurs when the value of a country's:

Select one:

a. imports exceeds the value of its exports.

b. exports exceeds the value of its imports.

c. inflow of foreign capital exceeds the outflow of domestic capital.

d. outflow of domestic capital exceeds its inflow of foreign capital.

14-

Which of the following is a U.S. current account transaction?

Select one:

a. Selling a computer chip to a resident in Europe.

b. Buying stock shares of a Canadian company.

c. Selling U.S. dollars in exchange for euros.

d. A foreign investor's purchase of a manufacturing plant in the United States.

15-

An exchange rate is:

Select one:

a. a yearly summary of all the economic transactions between residents of one country and residents of the rest of the world.

b. the sum of the balance of trade, net income on capital held abroad, and net transfer payments.

c. the price of one currency in terms of another currency.

d. a currency whose value is not pegged but governments will intervene extensively in the market to keep the value within a certain range.

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