Countries with high trade decifit shouldnamp;#39;t have low forex? -

If EXlt;IM so, lower forex will facilitate EX a bit but we will have to pay much more for imported goods. Is that right? Moreover, lower forex means higher external debt. Therefore, countries with huge debt shouldn t have low forex too? In my country, both trade decifit and external debt are high but gov still keeps a stable nominal forex while inflation is escalating (which means REER decrease), why? There are many other variables to consider other than forex flows. Yes you are right theoretically with EXlt;IM. 2nd point: Just have a look at the USA. Don t they have a trillion dollar debt? look at their dollar now. But there are also internal factors to consider like interest rates. 3rd point: could be internal factors like money supply, employment, interest rates, government. Look at China s currency. Isn t that quot;peggedquot; to a certain extent? the exchange rate is determine by markets which make capital inflows and outflows match. This includes trade, investments, tourism, aid, and loans. Inflation happens in all countries and only if the difference in large would it have much effect on exchange rates in a years time.