Which of the following statements are correct for Current Account Deficit CAD 1 It reflects only the...........

Economic Affairs Balance of Payments

Which of the following statements are correct for Current Account Deficit (CAD)?

1. It reflects only the difference between the exports and imports of goods and services.

2. It can be financed through increase in FDI and FPI.

3. Increase in CAD implies that foreign exchange reserves of the economy are decreasing.

4. Increase in CAD over a time period is associated with increasing gap between the domestic savings rate and the investment rate of the economy.

Select the correct answer using the codes given below:

1 and 2 only

2 and 3 only

3 and 4 only

2 and 4 only

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Explanation:

It is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers. ... A country is said to have a trade surplus if its exports exceed its imports, and a trade deficit if its imports exceed its exports.