Question

if the financial account balance must exactly offset the current account balance, why do government accounts...

if the financial account balance must exactly offset the current account balance, why do government accounts bother to record the financial account?

Homework Answers

Answer #1

The financial account and the current account consist of different items in the books. The current account consists of exports and imports which make up the balance of trade and the financial account contains capital inflows and outflows in the form of foreign direct investments. Thus the current account and capital account occupy very different items and hence are analyzed separately. The current account looks at the trade of goods and services while the capital account looks at financial flows. The balance on capital account must cancel out that on the current account.

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