Devaluation is often used by countries with to improve their current accounts. Since the current account equals national savings less domestic investment, this improvement can only happen if investment falls, saving rise or both. Therefore, how might a currency devaluation affect national savings and domestic investment?

To answer the question fully, you need to make some assumptions and use a model.Use the Monetary Theory of BOP model to discuss how a small country with pegged exchange rates will be affected if they reset their currency to, say, the USD.Remember, you need a robust answer in which you follow a chain of reasoning using the model.Assumptions should be clear along with the steps of what happens and why.So, if there were now surplus savings (in excess of investment) what might happen to the money looking for better return. What might be the impact upon the already devalued exchange rate?