Assume a system of floating exchange rates.Due to a high savings rate, suppose the level of savings in Japan is in excess of domestic investment needs.If Japanese residents invest abroad, then the yen's exchange value will ____ , and the Japanese trade balance will move toward ____.
A) appreciate, deficit
B) appreciate, surplus
C) depreciate, deficit
D) depreciate, surplus

Question

Quizplus · Accepted Answer

When Japanese residents invest abroad, they are selling yen to buy foreign currencies, leading to a depreciation of the yen. A weaker yen makes Japanese exports cheaper and imports more expensive, improving the trade balance towards a surplus.

Assume a System of Floating Exchange Rates