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Current account & floating exchange rate

Syllabus: Explain why a deficit in the current account of the balance of payments may result in downward pressure on the exchange rate of the currency.

Syllabus: Explain why a surplus in the current account of the balance of payments may result in upward pressure on the exchange rate of the currency.

Under a floating exchange rate, a current account surplus or deficit will put upward/downward pressure on the exchange rate. Click on the various markers in the diagrams below to see more detail for a current account surplus and deficit.


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