All else equal, a depreciation of the British pound relative to currencies such as the euro and the Canadian dollar should ________ the current account balance in Great Britain and therefore ________ the financial account balance in Great Britain.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Question

Quizplus · Accepted Answer

A depreciation of the British pound makes British goods cheaper for foreigners, likely increasing exports and improving the current account balance. However, because the balance of payments must balance, an improvement in the current account (a surplus) would be offset by a deterioration in the financial account (a deficit), leading to an increase in the current account balance and a decrease in the financial account balance.

All Else Equal, a Depreciation of the British Pound Relative