What will be the effect on the us exchange rate

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In 2005, the United States ran a current account deficit of $792 billion. Reassuringly, the same table shows that private foreigners invested $1,212 billion to finance this spending. However some observers expected that the enthusiasm for American investments would wane substantially. The deficit reached an all-time high of 7 percent of gross domestic product in the fourth quarter of 2005. A growing deficit would pose a risk should investors sour on U.S. assets and diversify to other countries.
If this report is correct and if U.S. investors also come to believe that U.S. assets are less desirable compared to foreign assets, what will be the effect on the U.S. exchange rate?

Reference no: EM13242613

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