If a nation has a balance of payments deficit and exchange rates are flexible, the price or value of that nation's currency in the foreign exchange markets will rise.

Question

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If a nation has a balance of payments deficit, it means that the nation is importing more goods and services than it is exporting. This leads to a higher demand for foreign currency, which puts downward pressure on the value of the nation's currency. Therefore, the price or value of the nation's currency would fall in the foreign exchange markets, not rise.

If a Nation Has a Balance of Payments Deficit and Exchange