Current Account Deficit (CAD) in balance of payments occurs when the sum of receipts of foreign exchange on account of trade in visible and invisible is less than the sum of payments of foreign exchange on account of trade in visibles and invisibles.
A CAD implies that a country has contracted to spend more foreign exchange than it has been able to earn during the year.
A CAD can be financed by different sources :
(i) A country may use a part of its gold stocks and make payments to foreigners by means of gold.
(ii) A country may draw upon the reserves of foreign currencies and foreign securities.
(iii) A country may borrow foreign exchange from different officials and private sources.
(iv) It may mobilise foreign exchange by attracting deposits from foreigners and investment of capital by foreigners.