CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

Propelled by an older population and a high saving rate, Japanese citizens make substantial real and financial investments abroad. If Japanese investment abroad exceeds foreign investment in Japan (a financial account deficit), and we assume the capital account balance is zero, the Japanese ______
A. must run an offsetting surplus on their current account transactions.
B. yen must appreciate on the exchange rate market.
C. yen must depreciate on the exchange rate market.
Explanation: According to the balance of payments, which requires that the capital/financial account exactly offsets the current account, the Japanese must have a current account surplus.

User Contributed Comments 5

User Comment
Pooh inflow - credit; outflow - debit
dimos OK I understand why A is the correct answer, according to theory. But, if yen depreciates, the current account moves towards surplus....
CoffeeGirl financiall account - japanese make investment abroad. large debit, so, negative financial account as financial account + current account = 0, so, current account is positive, meaning surplus
whoi dimos: exchange rate doesn't solve deficit ;)
dblueroom right, you can have deficit in either current account or capital account and still have an appreciating or depreciating currency. Basically, there is no causal relationship there.
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