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CFA Level I · CFA Level I Exam · Capital Flows and the FX Market

Based on the national income identity, a country whose domestic saving exceeds its domestic investment will most likely have a:

A country with saving above investment will most likely run a current account surplus. The current account balance equals saving minus investment, so surplus domestic saving that cannot be invested at home flows abroad as net lending to the rest of the world.

  1. Acurrent account surplusCorrect
  2. Bbalanced current account
  3. Ccurrent account deficit

Explanation

The current account balance equals saving minus investment (S - I). If saving exceeds investment, the excess saving is lent abroad, producing a current account surplus.

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