Explain why a currency depreciation leads to an improvement in a country’s trade balance.

Explanation
The trade balance of a country (say, Country A) is the difference between its exports and imports. As its currency depreciates, its goods become costlier relative to foreign goods.

Consumers in the domestic country as well as in the foreign countries would therefore demand more of Country A's product. This in turn would cause its exports to rise and the imports to decline. Higher exports and lower imports cause an increase in the country's balance of trade.

Verified Answer
Depreciation of the currency causes the country's goods to become cheaper relative to the other country's goods. This increases the exports of the country and reduces its imports leading to a rise in the country's trade balance.