Impact of Currency - sgfunds

By meatball ( 18 nov 2007 )

1) Trade Balance of Payments.
When the country export more than it import, its currency is expected to rise. As the influx of funds back into the country increases, where the currencies is converted back to local currencies causing a increase in demand for the currency. For example, ppl buy ur goods, they will buy SGD to buy your goods and services etc...

2) Monetary Policy (Eg. Interest Rate)
When the country's interest rate increases, the currency will strengthen. Ppl may save more money, increasing the reserves and less outflow of funds resulted. Inflow of funds increases as foreigners may put money into your country as deposit or buy your currency for Fixed Deposit (in ur or their countries), Bills, Bonds etc. Eg. the carry trades which involves ppl especially big institutions borrowing low interest rate JPY and puting them in the high yielding AUD or NZD etc.

3) Fiscal Policy
Fiscal policy affects the economy and will indirectly affects the trade flows and Balance of Payments especially for Singapore where we import most or all of our resources.

There are some other areas I missed out, this are some of the main pts.

Details found here.