a) According to recent media reports:

‘USA has accused China of currency devaluation to promote its exports’.

In the light of the given media report comment, how exports can be promoted through the Currency Devaluation?

b) What is meant by the Current Account Deficit (CAD) and Current Account Surplus (CAS)? State their significance.

China has been devalued the currency for promoting the exports. Exports can be promoted by the devaluation. Devaluation is the process of devaluing the domestic currency purposefully by the government. This is mainly done by the government to promote the exports of the country. When the devaluation takes place, the domestic currency becomes cheaper in the international market compared other countries currency. When Chinese Yuan is devalued, it becomes cheaper in the international market compared to US Dollar. This will lead to the purchase of a good by other countries from China. When the all other nation purchases the commodities from China, it increases the exports of China. And also it will decrease the exports of other nation which has a high value of the currency. Hence the devaluation by the country will increase the exports of the country.

b) The current account of the country consists of all the transaction relating to the trade in goods and services and unilateral transfers. In the current account, imports and exports are the main components. The difference between exports and imports make the balance of invisible trade.

Current Account Deficit

Current account deficit is the situation in which the imports of goods and services exceed the exports. The current account measures the trade plus transfer capital. A current account deficit is created when a country relies on foreigners for the capital to invest and spend. This situation implies that sales for the domestic goods in the market are very less. The country is over depended on the imports from the foreign countries.

Current Account Surplus

It is the situation in which the exports of the goods and services are more than imports of goods and services of the country. This is a favourable situation for the country when the exports are higher. When the exports are higher will increase the revenue of the country.

Current account deficit

It is the situation which the country faced when the resources are very less. Therefore that country will be bound to import from other countries. This will increase the dependency of the importing countries to the exporting countries. When dependency increases from developing countries to developed countries there are huge chances of exploitation by the developed country to the developing or underdeveloped country.

Current account surplus is the favourable condition for any country. But there will be only fewer countries which have huge resources faces this condition. This will increase the revenue of the country and makes a favourable condition for the Balance of Trade for the country.