International Trade And Exchange Rates - 2916 Words

Although difficult to establish and measure, a close relationship exists between international trade and exchange rates. UNCTAD (2013) acknowledges that the relative valuations of currencies and their volatility often have important repercussions on international trade, the balance of payments and overall economic performance. This relationship has moved to the center stage of international trade debate following the 2008 financial crisis and the decision by several large countries to maintain undervalued currencies in order to promote exports, in turn stimulating domestic economic growth. Gagnon (2012) sets the landscape, stating that ‘governments are distorting capital flows by around $1.5 trillion per year, in an attempt to hold down the value of their currencies.’ The impact of currency misalignment on international trade has led to global imbalances and many scholars and governments have criticized the World Trade Organization (WTO) for its failure to address this problem. One of the leading scholars in international law, Bergsten (2007) aptly summarizes these concerns stating ‘the failure to link the trade and currency issues is by far the most important single issue facing the global trading system and, indeed, international economic cooperation today’. Whilst various autho rs (Mattoo and Subramanian, 2009; Thorstensten, Marcal Ferraz, 2014) argue that the WTO is the best forum to address issues of currency misalignment owing to its credibility and effectiveness inShow MoreRelatedThe Foreign Exchange Rate On International Trade And Cross Country Investment Essay4627 Words   |  19 Pages1 Introduction The foreign exchange rate is the rate when domestic currency (for example, Chinese yuan) is used to exchange foreign currency (for example, us dollar). Volatility of exchange rate has been Kamble and Honrao (2014) defined as ?the risk associated with unexpected movements in the exchange rate.? 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The United States macroeconomy’s health is determined by these concepts and their factors. International Trade Exports and imports are what encompass international trade balance. When there are more exports over imports a trade surplus happens and when there are more imports over exports a trade deficit happens. A country will acquire