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Sorry for this basic question but I am not finding a simple answer to it

Lets say we have a input signal(a node) that we expect to be in the range from 0V to 5.4V. To make sure that it never exceeds it, a schottky diode with +5V on cathode is added.

This way, when the input voltage is 5.4 (assuming Vf of diode as 0.4V), then the diode becomes forward biased and the node is prevented to see voltage greater than 5.4v.

My question is does this have any adverse effect on the +5volt supply? What is the input signal sees a voltage of 12V? What will happen to the +5 supply then?

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You are right to think that this type of protection depends on the clamping voltage supply to sink current.

Normally, this kind of clamp is used in conjunction with some sort of series impedance between the signal source and the node being protected, selected so that it has minimal effect on the signal under normal conditions, but limits the amount of current through the diode to an appropriate level under fault conditions.

Most power supply regulators cannot sink current at all, unless they're specifically designed for it. Instead, we rely on the other loads connected to the supply to sink the current, which means that any current flowing through the protection diode simply reduces the current being drawn from the regulator. If the diode current exceeds the load current, then the regulator current will drop to zero and you'll lose regulation.

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