Other fundamental things equal, an increase in the exchange rate value of the domestic currency will cause the current account to:
A)fluctuate initially.
B)equal the official settlements balance.
C)move toward a long-run surplus.
D)move toward a deficit.

Question

Quizplus · Accepted Answer

An increase in the exchange rate value of the domestic currency will make the country's exports more expensive for foreign buyers, which in turn will reduce the demand for the country's exports. As a result, the current account will move toward a deficit.

Other Fundamental Things Equal, an Increase in the Exchange Rate