The capital and financial account for a fiettious country is shown in the table

Question

The capital and financial account for a fiettious country is shown in the table below. The balance on the current account for ths country is $8 billion r this a. Fill in the missing values in the table. CAIAL AND FINANCIAL ACCOUNT (billions of dollars) (11) Balance on captal account Financial Account (12) Foreign purchases of domestic assets (13) Domestic purchases of foreign assets (14) Balance on financial account (15) Balance on capital and financial account b. The country has a capital and financisl account Click to select!

Explanation / Answer

CURRENT ACCOUNT SURPLUS SHOULD ALWAYS BE EQUAL TO CAPITAL & FINANCIAL ACCOUNT DEFICIT. THEREFORE BALANCE ON CAPITAL & FINANCIAL ACCOUNT SHOULD BE (-8) BILLION.

NOW, BALANCE ON FINANACIAL ACCOUNT= (FOREIGN PURCHASE OF DOMESTIC ASSTES-DOMESTIC PURCHASE OF FOREIGN ASSETS). HENCE DOMESTIC PURCHASE OF FOREIGN ASSETS SHOULD BE

(9-2)= 7.

SINCE BALANCE ON CAPITAL & FINANCIAL ACCOUNT=(BALANCE ON CAPITAL ACCOUNT+BALANCE ON FINANCIAL ACCOUNT), BALANCE ON CAPITAL ACCOUNT SHOULD BE (-17) SO THAT -17+9=-8.

A) 11. BALANCE ON CAPITAL A/C= -17.

13. DOMESTIC PURCHASE OF FOREIGN ASSTES= -7.

15. BALANCE ON CAPITAL & FINANCIAL ACCOUNT= -8.

B) CAPITAL AND FINANCIAL ACCOUNT DEFICIT.

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