If a county has 25 billion euros of imports,15 billion euros of exports,and sells 20 billion euros of assets to foreigners,how many foreign assets do domestic residents purchase?
A)5 billion euros
B)10 billion euros
C)30 billion euros
D)None of the above are correct.

Question

Quizplus · Accepted Answer

The current account balance can be calculated as:
Current account balance = Exports - Imports 
= 15 billion euros - 25 billion euros 
= -10 billion euros 
This means that the country has a current account deficit of 10 billion euros, which means that it is buying more goods and services from other countries than it is selling to them. 
To finance this deficit, the country is selling assets to foreigners. This means that foreign assets are flowing into the country, so domestic residents must be purchasing foreign assets. 
The magnitude of this purchase can be calculated as: 
Foreign assets purchased by domestic residents = Current account balance + Capital account balance 
= -10 billion euros + 20 billion euros 
= 10 billion euros 
Therefore, the best choice is B, which states that domestic residents purchase 10 billion euros worth of foreign assets.

If a County Has 25 Billion Euros of Imports,15 Billion