- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 7. Capital Flows and the FX Market
- Subject 2. Exchange Rate Regimes
CFA Practice Question
A trade deficit means ______
II. the country must reduce its net financial claims on the rest of the world.
III. there must be a capital account deficit.
I. the country does not save enough to fund its investment spending.
II. the country must reduce its net financial claims on the rest of the world.
III. there must be a capital account deficit.
A. I and II
B. II and III
C. I, II and III
Explanation: A trade deficit must be exactly matched by an offsetting capital surplus.
User Contributed Comments 3
| User | Comment |
|---|---|
| GouldenOne | Why not 3? I thought a current account deficit is a trade deficit. |
| MinaYu | I think (not 100% sure tho) because trade deficit (which is current account deficit) is the same as surplus in capital/finance account.. |
| supriyo77 | Trade deficit does not necessarily mean a CA deficit if other items like unilateral transfers ,income from foreign investments etc. can cover the gap . In such a case the CA deficit will be offset by a Cap a/c surplus |