Here's a more detailed explanation:

*Trade Deficit:*

- Importing more than exporting leads to a higher demand for foreign currencies to pay for imports.

- This increased demand causes the value of the domestic currency to depreciate (go down) relative to other currencies.

- A depreciating currency makes imports more expensive, which can lead to higher prices and inflation.

- A trade deficit can also lead to a reduction in foreign exchange reserves, making it harder for a country to settle international transactions.

*Trade Surplus:*

- Exporting more than importing leads to a higher supply of foreign currencies earned from exports.

- This increased supply causes the value of the domestic currency to appreciate (go up) relative to other currencies.

- An appreciating currency makes exports more expensive for foreign buyers, which can lead to reduced demand and lower prices.

- A trade surplus can also lead to an increase in foreign exchange reserves, making it easier for a country to settle international transactions.

Keep in mind that these effects can be influenced by other factors, such as capital flows, interest rates, and economic indicators. Additionally, a trade deficit or surplus is not always a bad or good thing, respectively. It depends on the specific circumstances and the overall economic context.