Attached. Please let me know if you have any questions or need revisions.1Impacts of Currency on TradeStudent’s NameInstitution AffiliationDue DateProfessor’s NameCourse ID and Name2Impacts of Currency on TradeA trade deficit occurs when the imports of a country are more than its exports, while atrade surplus happens where a country’s exports exceed its imports. However, the trade surpluscontributes greatly to economic growth than the trade deficit because it indicates a net inflow ofdomestic currency from global markets (Bakari, (2017)). It is better positioned to create manyemployment opportunities for the people who pay taxes used by the government as revenue tocarry out development projects. Trade surplus also influences domestic currency’s value in theinternational market, making it stronger than other foreign currencies, therefore, increasingexchange rates. It increases the demand for domestic products in the international market,leading to an increase in the prices of its products in the market. The profit received from thesales is used to start new industries and improve infrastructure, leading to economic growth in acountry.Factors that influence the demand for foreign currency include the following; The rate ofinterest, a higher rate of interest attract more foreign investment, which impacts the value of thecurrency, but the demand for a currency decreases when the rate of interest is high. When therate of interest falls, the demand for currency increases. Transaction cost also determines thedemand for foreign currency. When there is a rise in transaction cost to buy or sell a stock,demand for foreign currency increases, decreasing when there is a decrease in transaction cost(Mustafakulov, (2017)). Consumer spending also determines the demand for foreign currency.An increase in consumer spending leads to an increase in demand for currency because spendingmoney directly influences currency influx. Still, a decrease in the spending on goods and servicesleads to a decrease in foreign currency demand.3Devaluation implies that there is a decrease in the value of a currency. It makes exportscheaper since it will make exports more competitive and be considered cheaper by the globalmarket, increasing demand for exports. It also makes importation of goods expensive, hencereducing the demand for imports from foreign countries, leading to lower economic growth(Nalin, (2020)). Revaluation refers to an upward adjustment of a currency value. It affects thevaluation of assets held by foreign companies in that given currency. This can even lead to lossesin the international market since goods that were initially bought at a cheaper price are sold at ahigh price that consumers may not be willing to pay.A currency war is a condition where some countries intentionally depreci…
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