International Trade

International trade
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The monetary aspects of international trade delve into the macroeconomic approach to understanding international trade. As such the current account shows the record of with trade in goods and services for two trading countries. The current –account deficit and terms of trade in turn influence the exchange rate fluctuation, because of changing demand on one currency over the other (Bergen, n.d.). On the other hand, the capital account records the monetary value of the actual exports and imports, and it measures the monetary flows related to the purchase and sale of financial assets in two countries. The balance of payments (BOP) records financial transactions occurring between two countries as well as consumers and businesses. The monetary effects of BOP show whether there is a surplus or deficit depending on the exports and imports in a country. The current account of the BOP takes into account net transfers and net investment income from abroad (Arize, 2000).
Since international trade involves exporting and importing, the foreign exchange fluctuations occur regularly. Hence, international payment options are typically utilized to hedge against risk exposure. The monetary aspects of foreign exchange can be affected by the policies that influence the value of a currency. When the currency appreciates then imports become cheaper while exports become more expensive (Econedlink.org, 2015). The monetary framework in a country determines how transactions are conducted, meaning that when a currency is demanded more than others it appreciates.
Market forces influence exchange rate determination, while the fluctuation of the exchange rates may affect international trade patterns (Evans, 2011). The monetary authorities adopt policies to guide a currency value when focusing on income and employment effects, but by and large the demand and supply of a currency has a bigger impact on currency fluctuation. A change in the exchange rate affects the relative price of goods and services between two countries, and there is either a gain or a loss for the parties involved.
References
Arize, A. C. (2000). Balance of payments adjustment: Macro facets of international finance revisited. Westport, Conn. [u.a.: Greenwood Press.
Bergen, J. ...