Best Bank Rates

Best Bank Rates

If a country has a trade deficit, the value of their imports is greater than the value of their exports. A trade surplus occurs when the value of exports exceeds the value of imports.

When a country has a trade deficit it needs to acquire more foreign currency than it receives through trade. For example, if Canada had a trade deficit of $100 to the US, it would have to acquired $100 in American currency to pay for the extra goods. What is more, a country with a trade deficit will also be over-supplying other countries with their own currency. The US now has an extra $100 CND that it does not need.

Basic supply and demand dictate that a trade deficit will lead to lower exchange rates and a trade surplus will lead to a stronger exchange rate. If Canada had a $100 trade deficit with the US then Canadian demand for USD would be high. But the US would also have an extra $100 Canadian so their demand for CAD would be low, due to excess supply of Bank Foreign Exchange Rates.

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