Suppose the Current Account of a Country Is in Balance

question 468

Multiple Choice

Suppose the current account of a country is in balance and the official settlements account equals 0. A new transaction occurs so that the current account is now in surplus, but the official settlements account does not change. From this we know that

• A) the capital account is now in deficit.
• B) the balance of trade is now in surplus.
• C) the government must make official reserve transactions.
• D) the government is running a budget deficit.

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Definitions:

Unsystematic Risk

The risk specific to an individual asset or company, such as management decisions or product recalls, which can be mitigated through diversification.

Diversification

An investment strategy that involves spreading investments among various financial instruments, industries, or other categories to minimize risk.

Diversifiable Risk

The risk that can be reduced or eliminated from a portfolio through diversification, as opposed to non-diversifiable risk.

Rational Investor

An individual who makes investment decisions based on logical analysis, aiming to maximize returns while minimizing risks.