CFA Level I · CFA Level I Exam · Capital Flows and the FX Market
A country's national saving falls short of its domestic investment. Using the relationship between the current account and saving and investment, the country most likely has a:
The country most likely has a current account deficit. The current account balance equals national saving minus domestic investment, so when saving is below investment the balance is negative, and the shortfall is financed by net capital inflows from abroad.
- Acurrent account surplus
- Bbalanced current account
- Ccurrent account deficitCorrect
Explanation
The current account balance equals national saving minus investment. If saving is less than investment, the difference is negative, giving a current account deficit financed by foreign capital.
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