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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4434
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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What does it mean when it is said the U.S. is running a trade

Resolved Question:

What does it mean when it is said the U.S. is running a trade deficit? What impact do you think a trade deficit could have on interest rates?
Submitted: 4 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 4 years ago.

Dear Friend,

 

Not only US, but all countries has balance of payments. i.e. payments towards total imports and receipts towards total exports. "Trade Deficit" is a economic measure of a negative balance of trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets.

 

However, a deficit has been reported and growing in the United States for the past few decades, which has some economists worried. This means that large amounts of the U.S. dollar are being held by foreign nations, which may decide to sell at any time. A large increase in dollar sales can drive the value of the currency down, making it more costly to purchase imports.

 

Wider trade deficit results into foreign owned dollars being deposited into US Banks In turn, these dollars have moved into the fixed interest market, creating the excess of demand for debt securities that has depressed interest rates. This overall keeps interest rates down and degrades the quality of assets held by the banks.

 

I hope this helps...

Warm Regards,

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