Answer:
Upward.
Explanation:
A large reduction in the current account deficit will place Upward pressure on the home currency value, other things being equal.
When their currency's value decreases, this means the valuation of foreign assets are rising. This further decreases the deficit in the current account. Additionally, a reduced currency value tends to increase export markets when prices become more cutthroat. Export demand falls as prices rise with inflation setting in.
The correct option is (d) upward or downward
A current account deficit takes place when the total import value of goods and services surpass the total export value of goods and services of a country.
The balance of trade in goods and services and net investment incomes from overseas are comprices by the current account of the balance of payments. whenever deflicit comes it results in the increment in the net trade deficit where the import value exceeds the export value.
As a result, there will be a net outflow of money from a country’s circular flow. Households and businesses pay for imports in their own currency, but this is eventually converted into the currency of the exporting nation. Hence, a rising current account deficit leads to an increased supply of a nation’s currency in the foreign exchange markets.
Due to this the country's circular flow will equal to net outflow. therefore all the expenditure of the different businesses and common life will eventually convert into the currency of the exporting nation instead of the imports. Hence ricing in the current account deficit increases the supply of the nation's currency in foreign exchange markets. And if this deficit in the current account deficit occurs at a large reduction rate it may be either upward or downward the pressure on the home currency value.
Hence, the correct option will be (c) which is Upward or downward.
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