Question

When there is a current account surplus (pick the best one):

A. The balance of payments is in deficit.
B. The surplus cannot persist due to re-equilibration of the FX market
C. There must be a financial account deficit
D.The balance of payments depends on the net flows of investment and trade.

Answer 1

A current account surplus occurs when a country earns more from its exports than it spends on imports. The surplus cannot persist due to re-equilibration of the FX market.

Step-by-step explanation:

A current account surplus occurs when a country's total value of exports exceeds its total value of imports. The correct answer to the question is B. The surplus cannot persist due to re-equilibration of the FX market.

When a country has a current account surplus, it means that it is earning more from its exports than it is spending on imports. This results in an excess supply of the country's currency in the foreign exchange (FX) market.

As a result, the value of the country's currency will appreciate, making its exports more expensive and its imports cheaper. This helps to re-balance the country's current account and eliminate the surplus.