The trade balance need not be in equilibrium . In the shot run , a trade balance deficit can be financed by building up reserves. The assumption is that the central bank finances the trade deficit by selling foreign exchange and thus maintains the exchange rate as its pegged level in the face of the a trade and balance of payments deficit, or that the bank purchases foreign exchange if there is surplus. We assume the goods and money markets clear sufficiently quickly so that equilibrium is determined at point E in Figure 18-3. As we have drawn the equilibrium, the trade balance is in surplus.