Question

"If the official settlements balance is zero, a current account surplus must equal the capital account deficit." ls the previous statement correct or incorrect? Briefly explain your answer.

Answer 1

The statement is "Correct".

The total balance of payment statement includes both the capital and Current account and shows the total balance between the foreign exchange in and out of the country. If it is Zero that means total incoming and outgoing of Forex from the country is equal i.e. the country has received the same amount through different means that they have to send outside the country.

It can be that they have to send more Capital amount or investment outside the country and in return, they received more revenue in the current account of the Nation's balance of payment. So, the deficit in the capital account is fulfilled by the current account surplus. (let's say there was a deficit of $100 in the capital account and surplus of $100 in current account the total balance of payment will show settlement as zero. )