CFA Level I · CFA Level I Exam · International Trade
A country's current account deficit is 4% of GDP and its capital account balance is negligible. Holding other things constant, the financial account balance is most likely:
The financial account is most likely a surplus of about 4% of GDP. The accounts must sum to zero, so a current account deficit with a negligible capital account is financed by net capital inflows of the same size, recorded as a financial account surplus.
- Aa deficit of about 4% of GDP
- Ba surplus of about 4% of GDPCorrect
- Cclose to zero
Explanation
The balance of payments must sum to zero (ignoring statistical discrepancy). Current account + capital account + financial account = 0. With a -4% current account and negligible capital account, the financial account must be about +4%, meaning net capital inflows finance the deficit.
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