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The Balance of Payments
A nation's balance of payments is the sum of all transactions that take place between its residents and the residents of all foreign nations
Current account: It is a section in a nation's international balance of payments that is made up of
1. Exports and imports of currently produced goods and services
3. Nets transfers
Example:
Capital account: Measures the difference between
1) The inflows of foreign money for the purchase of real and financial assets (stocks, bonds) at home and
2) The outflows of currency for the purchase of foreign assets abroad.
- With account surplus, they buy assets instead of storing assets.
-checks are also forms of capital account
Example:
Official Reserves account: foreign currencies owned by the central bank of a nation
- drawn upon to make up any net deficit or surplus in the balance of payments account
- balance of payments deficit: when inpayments of official reserves are made to its capital/ financial account in order to balance it with the current account
- balance of payments surplus: outpayments that add to the stock of official reserves
Current account: It is a section in a nation's international balance of payments that is made up of
1. Exports and imports of currently produced goods and services
US Exports: credit-earn foreign currencies (inpayments to US)2. Net investment income
US Imports: debit- reduce stock of foreign currencies (outpayments from US)
3. Nets transfers
Example:
- A Chinese company sells $1 million worth of berets to the U.S. army.
- BMW pays $1 million to a U.S. shipper for transporting cars from Germany to the United States.
Capital account: Measures the difference between
1) The inflows of foreign money for the purchase of real and financial assets (stocks, bonds) at home and
2) The outflows of currency for the purchase of foreign assets abroad.
- With account surplus, they buy assets instead of storing assets.
-checks are also forms of capital account
Example:
- Andre Prenoor, U.S. entrepreneur, invests $50 million to develop a theme part in Malaysia.
- An investor buys five $10,000 treasury bonds.
Official Reserves account: foreign currencies owned by the central bank of a nation
- drawn upon to make up any net deficit or surplus in the balance of payments account
- balance of payments deficit: when inpayments of official reserves are made to its capital/ financial account in order to balance it with the current account
- balance of payments surplus: outpayments that add to the stock of official reserves
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Latest page update: made by julie.lin
, Apr 29 2008, 9:42 AM EDT
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