Newland's net exports for a certain year equal -$2.2 billion, net factor payments from abroad equal $1.3 billion, and net transfers from abroad equal $0.5 billion. What will be the balance in Newland's financial account for the year?

What will be an ideal response?

The financial account is defined as the increase in domestic assets held by foreigners minus the increase in foreign assets held domestically. The financial account is just the accounting system that records the asset purchases that domestic residents and foreigners make. The financial account is defined so that the net flows in the financial account offset the net flows in the current account, or (Current Account) + (Financial Account) = 0. Current account = Net exports + Net factor payments from abroad + Net Transfers from abroad. Therefore, Newland's current account balance for the year is -$2.2 billion + $1.3 billion + $0.5 billion = - $0.4 billion. Therefore, Newland's financial account balance for the year is $0.4 billion.