6. Will exchange rates correct a balance-of-trade deficit?

Consider the case of a balance-of-trade deficit in the United States, along with a floating exchange rate.

During a balance-of-trade deficit, net financial (low or high)______ may be enough to offset net international trade flows, preventing the US dollar from(weakenening or strenghtening) and preventing exchange rate changes from (correcting or exaggerating) the problem.

7. Factors affecting international capital flows

All else equal, an expected increase in the value of a countrys currency will (increase or decrease)________ portfolio investment in that country.

If a countrys currency is expected to strengthen relative to the currency of a potential foreign investor, direct foreign investment DFI (becomes more or less) likely.