Question about current accounts and borrowing (mock)

CFA Level I FRA
#1

There was a question on the mock about current accounts. The answer implied that if you borrow money from a bank, the cash that you are lent does not count as a current asset. How is that possible? I thought current assets are supposed to be inventory, cash, and things similar to cash such as Accounts Receivables.

#2

Sounds weird.

#3

I am confused as well. Borrowing from a bank would increase CA with cash, as well as CL with loan payable. Maybe the question was indicating that borrowing money from a bank doesn’t increase the current ratio because CA and CL increase by the same amount.

#4

I’m so sad that you added this part.

If the current ratio’s less than one, increasing current assets and current liabilities by the same amount does, in fact, increase the current ratio,

#5

There’s a mock exam question regarding the current account in terms of imports and exports, and the answer tells you to exlcude a loan from a foreign bank. Is this what you’re referring to in your question? Between your title and your post, it isn’t completely clear.

#6

He’s probably referring to this question?? During the last month, a food company located in the United States had the following transactions: Transaction** Amount**(US$ millions) Bought raw material from Indonesia50.0 Sold food products to France 65.0 Received royalty fees from its branch in the United Kingdom 0.5 Donated to a charitable institution in Africa 0.1 Borrowed from a bank in Singapore 2.0 Paid legal fees to its German legal consultant company 1.2 Received interest coupon from its investment in Eurobonds issued in Luxembourg 0.8 These transactions will most likely increase the U.S. current account by: $14.5 million. $17.0 million. $15.0 million.

#7

I came across this question as well - to clarify, that question pertains to calculating current account balance of a nation, not calculating ratios in the context of FRA material.

My takeaway from the anwer they wrote was -

  1. Do not account for borrowing/lending to another nation i.e. the principal

  2. Account for interest paid in/out

  3. Ignore revaluation (either up/down) of assets

Would be great if someone has a definitive list of things that you should include/ignore in these calculations