If the official settlements balance is zero, a current account ...

[pane00]

If the official settlements balance is zero, a current account surplus must equal the capital account deficit. Is the previous statement correct or incorrect? Briefly explain your answer.
 
  What will be an ideal response?

Question 2

In August 2007, Sun Trust Bank has 83 million in loans and 114 million in M1 deposits. If Sun Trust is holding 4 million in reserves, the bank's reserve ratio is
 
  A) 31 million.
  B) 4.8 percent
  C) 3.5 percent.
  D) 72.8 percent.

[lcapri7]

Answer to Question 1

The statement is correct. The sum of the current account balance plus the capital account balance plus the official settlements account must equal zero. If the official settlements account balance is zero, then the sum of the current account balance plus the capital account balance must equal zero. Therefore a current account surplus must be balanced by an equally-sized capital account deficit.

Answer to Question 2

C