Which of the following is true?

Question

Quizplus · Accepted Answer

According to the balance of payments accounting, every transaction involving the exchange of goods and services between residents of different countries also involves the exchange of financial assets. Hence, the net flow of goods is associated with a net flow of financial assets in the opposite direction. For instance, a positive trade balance (i.e., exports exceeding imports) implies a net inflow of foreign exchange, which can be used to purchase local assets like stocks or bonds. Similarly, a negative trade balance (i.e., imports exceeding exports) implies a net outflow of foreign exchange, which can be compensated by selling local assets to foreign investors. Therefore, the balance of trade (or net exports) and the balance of capital (or net financial flows) are two sides of the same coin, and they must balance each other to ensure that the overall balance of payments is zero.

Which of the Following Is True