Current account
The part of the balance of payments recording trade in goods and services, investment income and transfers. A deficit means the country spends more abroad than it earns and must borrow or sell assets to pay.
Where you will meet it
Current account appears in 8 learning outcomes on the CFA syllabus. A few of them:
- Explain the ways of estimating what an exchange rate is fairly worth over the long run
“The macroeconomic balance approach estimates the exchange rate change needed to move the projected current account to its sustainable level.”
- Recognise and interpret how economies are connected through growth, interest rates and currencies
“Macro linkages: a small open economy imports its partners' cycles, and a current account deficit must be financed by capital inflows.”
- Contrast active currency approaches that rely on fundamentals-based valuation, technical analysis, carry trades or trading volatility
“Fundamental approaches estimate long-run fair value from purchasing power parity, real interest rate gaps, current account balances and risk premia, buying undervalued currencies and waiting for slow convergence.”
- Explain how the flows recorded in the balance of payments move exchange rates
“Every balance of payments flow creates demand for, or supply of, a currency, and a current account deficit is matched, apart from statistical discrepancy, by a surplus on the capital and financial accounts, that is, by net inflows.”
See also
Practise it
Practise current account until it is automatic: questions that explain every wrong option.
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