A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is greater than the money its residents pay to other countries for imports.
Currency exchange rates can be impacted by the balance of trade, which shows whether a currency is in more or lesser demand. A nation with strong international demand for its products would typically export more than it imports, driving up the demand for its currency. A nation whose imports exceed its exports will have lower currency demand.
The currency exchange rate is one of the most significant drivers of a country's relative degree of economic health, along with variables like interest rates and inflation. A currency with a higher value makes imports cheaper and exports more expensive in foreign markets.
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