Borrowing from abroad must have been equal to the trade deficit

Either investment must have exceeded saving, or government spending exceeded taxes (net of transfers and subsidies), or both.

The country’s debt to foreign countries must have grown as a percentage of GDP.

There must have been a surplus on the capital and financing account.

Both 1 and 2

1 only

2 only

Neither 1 nor 2

A fall in incomes in the US.

News which suggests that prospects for UK firms are improving.

A rise in interest rates in the UK.

An expected rise in the value of sterling.

A fixed exchange rate regime.

An adjustable peg exchange rate regime.

A managed float routine.

A floating exchange rate regime

The law of one price says that the prices which producers in different countries set for a particular product will be the same if the prices are expressed in the same currency using the current exchange rate

Purchasing power parity is a theory which says that says the total prices of any basket of products which apply in two different countries will be the same if the prices are expressed in the same currency using the current exchange rate.

Interest rate parity is a theory that the interest rates on similar assets in two countries will be the same.

The real exchange rate between two countries is the rate at which a particular basket of products produced in one country can be traded with a similar basket produced in another