ly depreciate.The United States has a balance of payments deficit worth nearly 4 % of GDP and negative net foreign assets (or foreign debt) worth nearly 20 % of GDP. If U.S. growth is sustained in the medium term, it is quite likely that the balance of trade in goods and services will not improve. The United States is the only major country, or country "bloc," to have a substantial trade deficit and this is proving of great advantage to the rest of the world. If the balance of trade does not improve, there is a danger that over a period of time the United States will be in a position called "debt trap," with an accelerating deterioration both in its net foreign asset position and in its overall current balance of payments (as net income paid abroad starts to explode). According to the above the United States has a balance of payments deficit and because of that the US Dollar, should have fallen. But that is not the case because the US dollar still remains quite a strong currency despite that deficit. More specifically between the beginning of 1999 and late-April 2000 the three major partner currencies for the United States, the yen, the Canadian dollar had been appreciated against the US dollar by 3%, 7% respectively for the two first currencies, and the Euro has depreciated by 19%. However, that was not enough and the US dollar was still remaining a strong currency.Consequently, from the above a question is raising as what other factors apart from the deficit in United States’ current account could keep the dollar at such high levels. In other words what other factors can affect exchange rates. A foreign exchange, or currency, rate as we have already said, is simply the price of one country's money in terms of another's. Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. Supply and demand factors are constantly shifting, and the price of one currency in rel...
