Suppose initially Canada has all its international payments accounts in balance (no surplus or deficit). Then Canadian firms increase the amount they import from Japan, financing that increase by borrowing from Japan. Everything else remaining the same, there will now be a current and financial account
A)surplus and a capital account surplus.
B)surplus and a capital account deficit.
C)deficit and a capital account surplus.
D)deficit and a capital account deficit.
E)surplus and a capital account balance.

Question

Quizplus · Accepted Answer

When Canadian firms increase imports from Japan, it creates a current account deficit. Financing these imports by borrowing from Japan results in a financial account surplus.

Suppose Initially Canada Has All Its International Payments Accounts in Balance