If there is a small surplus in the combined current account plus capital and financial account for a certain year, then to make the two accounts balance there will be:

Question

Quizplus · Accepted Answer

A small surplus in the combined current account plus capital and financial account means that there is a net inflow of foreign currency into the country. To balance the accounts, the country must increase its official reserve holdings by purchasing foreign currency with its domestic currency. This would also help to prevent the exchange rate from appreciating too much, which could harm the country's export competitiveness. Therefore, the correct answer is an increase in official reserve holdings (choice C).

If There Is a Small Surplus in the Combined Current