Abstract
Article history: Received September 28, 2014 Accepted 28 December 2014 Available online January 1 2015 Exchange rates always affect the prices of the imports and export of products and services in which countries are trading with other parts of the world. Therefore, exchange rate calculation is one of the essential issues for making appropriate policies. This research investigates the determinants of trade, i.e. import, export, industrial growth, consumption level and oil prices fluctuation, which bring changes in exchange rate and their influence eventually on balance of payments. Data of defined variables was collected on yearly basis for China and USA for thirty one years. By applying cointegration, it is estimated that there existed a long run relationship in both countries. USA and China had significant and correct signs on the short run dynamic and some of the factors did not. Exchange rate did not granger cause balance of payment and balance of payment did not granger cause exchange rate. In conclusion, we found that determinants of balance of trade could affect the exchange rates, also, these rates had considerable effect (positive or negative) on balance of payments. In this twofold study, we found relationship of exchange rate with selected determinants of trade, and also examined their bilateral effect, and then made contrast of both countries. Growing Science Ltd. All rights reserved. 5 © 201
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