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due to weak global demand. ‘Overseas demand for some exported UK business and financial services might have softened, mitigating the benefit for those exporters from the past depreciation of sterling and recovery in the global economy’ (MPC, 2010). The quantitative easing that has been brought forward would further affect interest rate, inflation and exchange rate. The Bank of England is caught in the dilemma of economic recovery by quantitative easing and low interest rate or inflation control by high interest rate. It has to access the developments more closely and controls the situation.

 

BALANCE OF PAYMENTS – CURRENT ACCOUNT SWINGS

 

To understand and study the fluctuations in the prices of the currency, every country maintains an itemised record of the factors causing the demand for or supply of their currency. This record is called the Balance of Payments account.

 

Although, the primary function of the BOP account is to determine the reasons for currency fluctuations, this is not its sole responsibility. A BOP account also acts as a signal to other countries portraying the account holder’s position in the international trade market. It acts as a tool for measuring the country’s performance in the international economic competition. A country’s international transactions are grouped into three main accounts:

 

Current account – Records the exports and imports of goods and services.

 

Capital account – Records all transactions of assets such as real estate, bonds, stocks, businesses and bank accounts.

 

Official reserve account – Keeps track of the purchases and sales of the international reserve assets including gold, foreign exchanges, dollars etc.

 

For the purpose of this report, we will only provide insight into the current accounts of BOP. A current account can either have a deficit or a surplus balance. This is directly a result of the constituents of the account. If an economy heavily relies on its imports, it is said to have a deficit. Similarly, an economy inclined heavily towards exporting leads to a current account surplus.

 

The likes of Joseph W. Gruber & Steven B. Kamin (2007), Menzie D. Chinn & Jaewoo Lee (2009), and many others started their studies exploiting the established fact that US has huge deficits while East Asian countries like China, Hong Kong, Malaysia, Singapore etc. have trade surpluses. Various factors contribute to the fluctuations in the current account balances.

 

Import and export activities – The level of import and export activity of an economy, be it capital, labour, merchandise or services, affect the cur本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。