If a country has a current account deficit of 200 billion th

If a country has a current account deficit of $200 billion, this means that: Question 14 options: a) it will have a capital account surplus of more than $200 billion. b) it will have a capital account surplus of $200 billion. c) it will have a capital account deficit of $200 billion. d) it will have a capital account deficit of more than $200 billion.

Solution

ANSWER:

The correct answer is option b because when there is a current account deficit , then it means the country is importing more then it is exporting and due to current account deficit the price of exports increase making it less competitive due to heavy demand of domestic currency which fluctuates the currency rate and this leads to outflows of interest and dividends which means there is an increase in capital account surplus.