Why has the dollar remained strong and its value not decreased as much as economists expected given the current account deficit?
A) Foreign investors continue to invest in U.S. financial assets, and this raises the demand for dollars.
B) Foreign investors have reduced the level of investment in U.S. financial assets, increasing the supply of dollars.
C) Foreign investors no longer want to hold dollars and this raises the demand for dollars.
D) The negative trade balance due to the current account deficit reduces the supply of dollars.

Question

Quizplus · Accepted Answer

Foreign investors continue to invest in U.S. financial assets, which increases the demand for dollars, thereby keeping its value strong despite the current account deficit. This investment demand for dollars offsets the potential negative impact of the deficit on the currency's value.

Why Has the Dollar Remained Strong and Its Value Not