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How might a country exchange rate influence the balance of payments?
Definition of the exchange rate; price of domestic currency in another (basket of) currency (currencies). Current account (trade and transfers) and capital account (net flows of investment, deposits etc). The link among a country s exchange rate and balance of payments is primarily to be found in current account; the currency also affects the price of goods and services for foreigners, thus a lower/higher price of the currency will affect demand for goods and services itemised under export revenue and import spending in the current account.
Player 2 C B A 1,2 3,2 B 2,3 a, b Player 1
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