Can someone pls explain the relation between current account deficit, domestic savings& investment, currency overvaluation (or currency depreciation ? are they same?)
I get that when domestic savings is more than investment -> excess demand for capital (currency appreciation)->, foreign savings are used which leads to current account DEFICIT
However, in answer to one of EOC curriculum questions (Qn#18) current account SURPLUS is mentioned as an indicator of currency strengthening. This seems to be in contrast to above mentioned linkage. What am I missing?
I think you mean when domestic saving are LESS than investment -> excess demand for capital.
There is an excess demand for capital as domestic savings levels aren’t high enough to satisfy the demand for investment therefore they look to foreign capital.
there are a lot of counterviews in this reading. for the third part in this list i picked the lowest short term rate since it talks about low short rates being an indicator of capital projects, and high short rates to limit speculation on ccy movements.