Question

What is the nation’s trade balance on its current account and capital account given the following...

What is the nation’s trade balance on its current account and capital account given the following information? Is the nation experiencing a cash inflow (outflow) on its current account and its capital account? Was there a net currency inflow or outflow?

Imports $412

Exports $500

Direct Investments Abroad $68

Foreign Investments in the Country $32

Foreign Purchases of Domestic Securities $66

Purchases of Foreign Securities $174

Net Income from Foreign Investments $142

Government Spending Abroad $66

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Answer #1

Current account includes exports- imports, net income from foreign investments and all kind of government spending abroad.

Thus,

CA = Exports - imports + net income from foreign investment - government spending abroad.

CA= 500 - 412 + 142 - 66 = $164

Capital account includes investments to and from abroad, and borrowing and lending across countries.

Capital Account = Foreign investments in the country - direct investment abroad + foreign purchase of domestic securities - purchase of foreign securities.

= 32-68+66-174 = - 144.

the nation experiencing a cash inflow on its current account and a cash outflow its capital account.

To calculate net currency inflow or outflow. Consider

BOP = capital account + current account

= 164- 144 = $ 20

Thus there is net currency inflow.

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