The government of Techland experienced a current account surplus of $0.4 billion during a certain year. What should be the balance in the financial account of Techland? Explain your answer
What will be an ideal response?
A country which runs a current account surplus must either buy assets from foreigners or lend to foreigners. Hence, current account surpluses must match financial account outflows. In other words, when a country makes net sales of goods and services from foreigners, the country must make net asset purchases from foreigners. Therefore, there is likely to be a deficit of $0.4 billion in Techland's financial account.
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