Suppose Canada has a zero balance (no surplus or deficit) on the both the current account and on the capital account. Then Canadian businesses export new snow blowing machinery to Italy, which Italy finances by borrowing from a Canadian bank. On Canada's balance of payments accounts there is now a current account

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The export of snow blowing machinery will result in an increase in Canadian exports and a current account surplus. However, Italy's borrowing from a Canadian bank will create a financial account deficit for Canada as there will be an outflow of funds from Canada to Italy. Therefore, the overall balance of payments for Canada will be a current account surplus and a financial account deficit, resulting in answer choice B.

Suppose Canada Has a Zero Balance (No Surplus or Deficit)