1. In a freely floating exchange rate system, if the current account is running a deficit, what are the consequences for the nation's balance on financial account and its overall balance of payments?

2.

a. As the value of the U.S. dollar rises, what is likely to happen to the U.S. balance on current account? Explain.

b. What is likely to happen to the value of the dollar as the U.S. current-account deficit increases? Explain.

c. A current-account surplus is not always a sign of health; a current-account deficit is not always a sign of weakness. Comment.