Question

A deficit in a nation’s financial account means

a.it must limit the flow of foreign capital investment to make up the difference.
b.it must have a deficit in its current account as well.
c.it must increase interest rates to attract foreign investment.
d.there must be a surplus in its current account.
e.there must be more imports than exports for the nation.

Answer 1

b, it mist have a deficit in its current account as well

Answer 2

The correct answer is C. A deficit in a nation's financial account means it must increase interest rates to attract foreign investment.

Step-by-step explanation:

A deficit in the financial account of a country implies that there are greater debts and expenses than credits and assets in the economic balance of a given country. That is, the amount of negative accounts is greater than the amount of money available in the economic balance of the nation.

Therefore, the country must generate foreign exchange income to achieve a financial surplus or, at least, to equilibrate the balance of expenses and incomes. One way to achieve this situation is through the capture of foreign investments, which are seduced through high interest rates, which will yield greater profits to foreign investors.