How does the balance of a financial/capital account affect trade?
1 Answer
Aug 14, 2015
See the explanation section.
Explanation:
A surplus in the capital account may be due to -
1 Repayment of loan by other countries to the domestic country.
2 Borrowing by domestic country.
The first case will not affect trade.
The second case will affect trade.
Its immediate effect is payment of interest to the creditor nations.
In the near future, the loan has to be repaid.
For this the domestic country has to earn. It has to improve its export of goods and services. This way it will affect trade.
