If a Country Has a Flexible Exchange Rate System and a Deficit

question 6

Multiple Choice

If a country has a flexible exchange rate system and a deficit on capital account

• A) the balance of payments must be negative.
• B) The balance of payments must be positive.
• C) The balance on current account must be positive.
• D) The balance on current account must be negative.

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Definitions:

Liquidity Risk

The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

Derecognition

The process of removing an asset or liability from a company's balance sheet because it has been disposed of or is no longer expected to provide future economic benefits.

Financial Asset

Any asset that is cash, an equity instrument of another entity, or a contractual right to receive cash or another financial asset.

Contractual Rights

Rights granted to an individual or entity based on the terms of a contract.