Trade Surplus, A Preliminary Study Of The Relationship Between Bank Credit And Asset Revaluation

This paper explains how trade surplus and bank credit affect assets re-evaluation on the aspect of fund source and asset allocation. The major logic clue is that the domestic economic entities will accumulate foreign assets continually when the trade surplus increasing, in this situation they will sell the foreign assets to get the money back to homeland and buy the domestic assets to reduce the risk. This active will lead to domestic currency appreciation and domestic assets' price rise. Credit-creation of domestic bank can be divided into two categories, one is active-creating and the other is passive-creating. The passive- creating is the result of domestic economic entities adjustment of their own balance sheet of the bank. It accompanies with growth of both weighted average lending and interest rate. On the other hand, the active-creating is produced by banking system its own credit supply explanation and lead to the saving growth of domestic economic entities. For the same purpose, the domestic economic entities will reduce the saving to buy the actual asset of both domestic and foreign which could increase domestic asset prices and decline domestic currency exchange rate. Usually, it accompanies with banking credit rate increase and weighted average lending rate decrease.