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Assume that the only two trading partners in the globe are the US and the EU. We would anticipate a rise in demand for euros and an increase in the value of the euro if the United States eased import restrictions from the European Union.
What impact does a higher level of currency fluctuation on the transaction's foreign currency have on the payment balance?
The exchange rate between a nation's currency and other currencies may change as a result of changes in its balance of payments. The opposite is also true when a change in the relative strength of a currency might affect a country's balance of payments.
Who determines which currency is used in each nation on earth?
Each nation chooses the currency it will employ. Treaties and other agreements signed by nations may in some situations control the choice of currency. For instance, the European Union's 28 members, 19 of them have ratified the use of the Euro as their official currency.
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