Question

How do a​ country's current account and financial account balances affect its net foreign​ assets? The net amount of new foreign assets that a country acquires equals its current account​ _____, which in turn must equal its financial account​ _____.

Answer 1

The net amount of new foreign assets that a country acquires equals its current account​ SURPLUS, which in turn must equal its financial account​ AND CAPITAL ACCOUNT DEFICIT.

Step-by-step explanation:

first of all, the balance of payments (BOP) equals 0:

BOP = current account + financial account + capital account

If net foreign assets increase, then the current account will have a surplus, and if the current account has a surplus, then both the financial account and capital account must have a combined deficit.

current account (+$ surplus) + financial account + capital account = BOP = 0

current account (+$ surplus) = - financial account ($ deficit) - capital account ($ deficit)

*generally the capital account is much smaller than the current and financial accounts, so in this case, the capital account could have a 0 balance or even a surplus, but it would be offset by a larger deficit in the financial account