An Essay on Economic Theory

3.3. Further Explanations on the Nature of Exchanges

An Essay on Economic Theory by Richard Cantillon
Richard Cantillon

Exchange rates are explained as a function of the balance of trade and other factors. A trade deficit can cause your money to exchange below par, while a trade surplus will cause it to exchange above par. In fact, the exchange rate, above and below par, is an indicator of the general balance of trade in a country. An attempt to prohibit the export of gold necessary to pay for deficits only hurts the economy.

From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.