Question

A country's receipts from External Borrowings and sales of assets to foreigners are less than its spending on repaying loans and purchasing foreign assets. The Capital Account will show a:

Options

• Balanced position

• Surplus

• Zero net credits only

• Deficit

Answer 1

Capital inflows (receiving loans from abroad, selling assets to foreigners) are less than capital outflows (repaying loans, purchasing foreign assets). Since \[\text{Capital inflows} < \text{Capital outflows}\], the account shows a deficit.