Solve the following problem:
Trade Deficit Effects on Exchange Rates Every month, the U.S. trade deficit figures are announced. Foreign exchange traders often react to this announcement and even attempt to forecast the figures before they are announced.
a. Why do you think the trade deficit announcement sometimes has such an impact on foreign exchange trading?
b. In some periods, foreign exchange traders do not respond to a trade deficit announcement, even when the announced deficit is very large. Offer an explanation for such a lack of response.