Exchange rate and global trading

Exchange rates and global trading have a very close correlation that when a country's currency is depreciating, the country's trade account can be improved, as the country's exports become cheaper and foreign imports become more expensive. Without other force intervention, there could be an equilibrium where a country's trade account and currency price are stable.

However, there are always many other forces that are trying to intervene and influence the forex market. The government may want to influence its currency price in order to improve its trade account; moreover, the government may sometimes want to increase its currency price under some situations, for example, the current Chinese government wants to maintain its currency value, though some institutions think the RMB has already been overestimated.

Under such circumstance, it actually creates a lot more uncertainties and transaction costs for many businesses that are doing international business.