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Explain the interaction between the current and financial accounts on the Balance of Payments. What are the implications of BOP imbalances for a country’s exchange rate?
in Economics by Diamond (39.7k points) | 13 views

1 Answer

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SA is a developing country otherwise known as an emerging market. A typical DC shows a current account deficit and a financial account surplus. (Nigeria is the exception). SA imports capital goods (SA is capital poor), and especially intermediate foods in order to produce more. Thus pushes the CA into deficit, since imports increase. Increase in imports = currency outflow because we are paying for foreign goods and thus we need that currency = decrease in foreign reserves.
by Diamond (39.7k points)
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