If the dollar appreciates because of a capital inflow from Asia, the balance on the U.S. financial account will increase and the balance on the current account will decrease.

Question

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A capital inflow from Asia would be recorded as a credit (increase) on the U.S. financial account, which represents cross-border investments in financial assets. At the same time, the U.S. current account, which records the flow of goods, services, and transfers, would decrease (since imports would become cheaper and exports more expensive with a stronger dollar).

If the Dollar Appreciates Because of a Capital Inflow from Asia