Answer to Question #134075 in Macroeconomics for nthabiseng mogudulu

Question

Please expain why this answercis correct: that a country's balance of payments can afford a deficit on the current account if there is a positive balance on the financial accounts.

Answer 1

The country can trade on portfolio investment where country's investors disinvest in foreign equity and debt securities, while overseas investors increased their holdings of the country's debt securities. The country can also devalue exchange rates by increasing the value of its exports relative to the value of its Imports or place restrictions on imports.