A country’s currency will appreciate or depreciate if it has Current Account Surplus / Deficit ? Saving Surplus / Deficit ? I am confused ! Can anyone help ?
Man, this is going back to L2 somewhat. Not sure if this is 100% correct, but: Current account surplus > exports are greater than imports > currency appreciation since importers need your currency to purchase your goods
There are some relevant materials in Reading 23. Any confirmation or further comment ?
Current Account Surplus = More exports than imports Savings account surplus generally leads to current account surplus. Since more money to invest and consume.
idreesz Wrote: ------------------------------------------------------- > Current Account Surplus = More exports than > imports > > Savings account surplus generally leads to current > account surplus. Since more money to invest and > consume. It seems that Current Account Surplus will lead to appreciation of a country’s currency while Savings Surplus will lead to depreciation. Correct me if I am wrong.
AMA Wrote: ------------------------------------------------------- > idreesz Wrote: > -------------------------------------------------- > ----- > > Current Account Surplus = More exports than > > imports > > > > Savings account surplus generally leads to > current > > account surplus. Since more money to invest and > > consume. > > It seems that Current Account Surplus will lead to > appreciation of a country’s currency while Savings > Surplus will lead to depreciation. > > Correct me if I am wrong. I need to know why you say Savings surplus will lead to depreciation. As I mentioned above, high savings rate make sure you have more money to invest and consume without having to rely on loans (deposits) from other countries.
This is why I raised the questions here since I am aware of that both positive and negative sayings seem to be justified and I am confused. It is said that Savings Surplus will lead to depreciation because there will be cash outflow (to chase higher return outside of the country) and cash outflow beeds to sell domestic currency and buy foreign country, so domestic currency will depreciate. On the other hand, can you confirm that Current Account Surplus will lead to appreciation of a country’s currency ? This seems to be discrepant to what is said to Savings Surplus and that’s why I am confused. Anyone else can help ?
Hmmm…I get your point. I agree with bpdulog. Current Account Surplus will lead to appreciation.
Please refer to CFAI text Vol 3 P.105. I will like to confirm if Savings Surplus will lead to depreciation. I am still not sure.
my understanding: savings surplus = savings higher than investments, this surplus goes abroad and is converted to foreign ccy, domestic ccy is sold - depreciates savings deficit = investments higher than savings, needs to be financed from abroad and domestic ccy is bought and appreciates but the actual FX rate effect will depend on the actual flows and if they are hedged or not …
pfcfaataf Wrote: ------------------------------------------------------- > my understanding: > savings surplus = savings higher than investments, > this surplus goes abroad and is converted to > foreign ccy, domestic ccy is sold - depreciates > > savings deficit = investments higher than savings, > needs to be financed from abroad and domestic ccy > is bought and appreciates > > but the actual FX rate effect will depend on the > actual flows and if they are hedged or not … Oh saving surplus means savings more than investment. Damn. This makes total sense then.
So, our conclusions are : Current Account Surplus : lead to appreciation of a country’s currency Savings Surplus : lead to depreciation of a country’s currency
domestic savings surplus = weakening currency domestic savings deficit = appreciating currency