Question

Why must a country with a current account surplus always have a financial account deficit? Please give an explanation.

Answer 1

A country with a current account surplus it means the value of its net exports is positive or in other words, that country exports is large than its imports. A country with current account surplus will always have a financial account deficit because , when a country has current account surplus it means it exports are larger and thus , the income of foreign currency or it has surplus of foreign exchnage which it can be used to invest in other countries .Therefore, the country investment in other countries become large and thats why financial account become deficit.