As a result of these two-way flows, modern economies are frequently both debtors (countries that owe money to the rest of the world) and creditors (countries that owe money to the rest of the world) (countries to which the rest of the world owes money). At the end of 2013, the United States had accumulated foreign assets worth $22 trillion and foreigners had accumulated assets in the United States as a result of years of both capital inflows and outflows

In principle, products, services, and assets produced in a country must be paid for with the currency of that country. Product purchases in the United States must be made in dollars; most European purchases must be made in euros and Japanese purchases must be made in yen. Sellers will occasionally accept foreign currency as payment, but will then convert it to native currency.

International transactions necessitate the existence of a market—the foreign exchange market—where currencies can be swapped for one another. Exchange rates, or the prices at which currencies trade, are determined by this market.

Europeans who wish to buy American goods, services, or assets swap euros for dollars on the foreign exchange market. That is, Europeans seek U.S. dollars from the foreign exchange market and supply euros to that market in return. Americans who wish to purchase European goods, services, or assets use the foreign exchange market to convert their dollars into euros.

• The term, equilibrium exchange rate refers to the exchange rate at which the quantity of U.S. dollars demanded in the foreign exchange market is equal to the quantity of U.S. dollars supplied.

The total amount of dollars provided to the foreign currency market must still match the total amount of dollars demanded. As a result, the increased capital inflow to the United States—a rise in the financial account balance of payments—must be offset by a decrease in the current account balance of payments.

Purchasing power parities are commonly calculated by estimating the cost of purchasing broad market baskets comprising a variety of products and services, such as autos and food, as well as housing and telephone calls.

The difference between nominal exchange rates and purchasing power parities is virtually always systematic: in general, aggregate price levels are lower in poor nations than in affluent countries because services are cheaper in poor countries. However, nominal exchange rates differ significantly from purchasing power parity even among countries with similar levels of economic development.

The two largest economies in the world, the United States and the European Union, trade more with each other than with any other economy. Trade obstacles, on the other hand, keep this partnership from attaining its full potential.

Between these two economies, the average tariff is 4%. Regulations and red tape contribute to the roadblocks that obstruct transatlantic trade.