Unit 4.6 · Balance of Payments
Current Account and Exchange Rate (HL only)
AO2AO4HLDiagram required
Syllabus Requirement
How a current account deficit or surplus influences the exchange rate through supply/demand for currency.
Assessment Objectives
AO2Application and Analysis
AO4Use of Appropriate Skills
HLThis topic is assessed at Higher Level only.
Summary
The current account is a key component of the balance of payments, reflecting the flow of goods, services, income, and transfers between a country and the rest of the world. Understanding the relationship between the current account and exchange rates is important, as a deficit in the current account can lead to currency depreciation, affecting international trade and investment.