Question

If a country’s current account has a $200 million surplus and its capital account balance has a $30 million deficit, then its financial account balance must have a _____________.

a) $170 million deficit correct

b) $170 million surplus

c) $230 million surplus

d) $200 million deficit

e) $230 million deficit

Answer 1

Answer. Option b) $170 million surplus.

Solution:- Balance of the financial account balance is calculated by subtracting the capital balance from the current account balance i.e, current account surplus - capital account deficit

= $200-$30

= $170 million surplus. (Financial account balance)

The current account refers to the sale and purchase of the goods and service manufactured in the particular country. Here the current account balance accrued in the form of the surplus quantity. Capital account refers to the fund hold after the activities of disposing the assets nor acquiring the non-financial assets. So here the financial assets were disposed at the cost of $30 million deficit. It may be the immovable property used for trading. For example the product iron extracted in the iron mine. Here iron ore is the extracted export product and the iron mine is the non-financial asset used for the exports. Such immovable assets are valued for depreciation process which are made action year by year. So in the question asked, $30 million is the valued depreciation calculated. As the capital stock has a deficit value, it is subtracted from the surplus current account to give the surplus of financial account balance.