Finance: Balance of Payments, Gold Standard, Trade Account, Financial Account

Running head: FINANCE
Finance
Name of the student
Name of the university
Author note

2FINANCE
Table of Contents
Answer 1....................................................................................................................................3
Answer 2....................................................................................................................................3
Answer 3....................................................................................................................................4
Answer 4....................................................................................................................................4
Reference list..............................................................................................................................6

3FINANCE
Answer 1
The balance of payments of a nation is known to measure all the economic
transactions between the people of nation and the people of other nations. It is known the
when the rate of exchange fluctuates it is known to affect the balance of payments. The
fluctuation of the exchange rate is known to only affect the balance of payments in the trade
balance. The rate of exchange is known to fluctuate when there will be change in the
domestic price or change in the demand and supply of money within a country. The exchange
rates are usually determined in the state of balance of payments. Therefore, a rise in the
imports will be led to rise to increase in demand for the foreign currency (Larrain and
Stumpner 2017). For obtaining the foreign currency, the importers will be selling the
domestic currency. Devaluation of the exchange rates also takes place when there is a trade
surplus in the balance of payments since a rise in the domestic prices is not encouraged. In
order to obtain the foreign currency, the importers are known to sell the domestic currency
for it. This will also strengthen the exchange rate of the foreign currency against the domestic
currency.
Answer 2
The gold standard is a kind of monetary system where the currency of a country is
known to have a value directly linked to gold. These particular countries are known to
convert the paper money into a fixed amount of gold. The country which is known to use
gold standard usually set a fixed price for gold and then buys gold at that particular price.
During the year 1870, under the classical gold standard, the international monetary system is
known to be largely decentralized and is market based (Borio and Disyatat 2015). Currently,
no country uses the gold currency. The main appeal of the gold standard is that it arrests
control of the issuance of money. The Gold Standard was the system under which most of the