In a floating exchange rate system, what is the likely effect on the currency's value if there is a balance of payments deficit?

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The currency's foreign exchange value is likely to decreaseThe currency's foreign exchange value is likely to increaseTrade-related inflows exceed outflowsOverall demand in the economy is rising

Explanation

When a country experiences a balance of payments deficit under a floating exchange rate regime, the demand for its currency tends to drop, causing its external value to decline. This is because more currency is being sold to finance the deficit, leading to depreciation.