Consider the following statements related to the Current Account Deficit 1 Higher current account de...........

Economic Affairs Balance of Payments

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Consider the following statements related to the Current Account Deficit:

1. Higher current account deficit means higher demand for foreign currency.

2. Higher current account deficit results in depreciation of the domestic currency.

3. High current account deficit may hurt domestic producers and their stock prices.

Which of the above stated consequences are correct?

1 and 2 only

1 and 3 only

2 and 3 only

All of the above

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Explanation:

- Higher current account deficit often requires more foreign currency to pay for imports than earned from exports, increasing demand for foreign currency.

- Currency Depreciation: This increased demand for foreign currency typically results in the depreciation of the domestic currency.

- Impact on Domestic Producers: A high current account deficit can lead to increased competition from imports, potentially hurting domestic producers and affecting their stock prices.

- Option 1: Addresses foreign currency demand and currency depreciation.

- Option 2: Focuses on currency demand and impact on producers.

- Option 3: Involves currency depreciation and impact on producers.

- Option 4: Covers all aspects accurately.