24. Balance of payments

Question 1

Current account

Answer 1

Current account - measure of the flow of funds from trade in goods and services, plus other income flows

Question 2

What are the components of current account?

Answer 2

1. Balance of trade in goods
2. Balance in trade in services
3. Income
4. Current transfers

Question 3

Balance of trade in goods

Answer 3

Balance of trade in goods - measure of the revenue received from the exports of tangible, physical goods minus the expenditure of the imported tangible, physical goods _over a given period of tim_e (visible balance).

Question 4

Export

Answer 4

Exports occur when international transactions relating to goods and services leads to inflow of money into the country

Question 5

Import

Answer 5

Imports occur when international transactions relating to goods and services leads to outflow of money into the country

Question 6

Surplus in the balance of trade

Answer 6

Export revenue > import expenditure

Question 7

Deficit in the balance of trade

Answer 7

Export revenue < import expenditure

Question 8

Balance of trade in services (banking, tourism, insurance)

Answer 8

Balance of trade in services - measure of the revenue received from the exports of services minus the expenditure of the imported services over a given period of time (invisible balance).

Question 9

Income in the current account

Answer 9

Income - measure of the net monetary movement of profit, interest, and dividends moving into and out of the country over a given period of time, as a result of financial investment abroad

Question 10

Current transfers

Answer 10

Current transfers - measurement of the net transfers of money from abroad

Question 11

Transfer of money

Answer 11

Transfer of money - payments made between countries when no goods or services change hands (lending money, grants, sending money back home)

Question 12

Remittance

Answer 12

Remittance - transfer of money between countries when a worker earning abroad sends money into another country for it to be spent there (mano apibrez.)

Question 13

The current account balance may be:

Answer 13

1. in surplus (>0)
2. in deficit (<0)
3. balanced (=0)

Question 14

Financial account

Answer 14

Financial account measures the net change in foreign ownership of domestic financial asstes.

Question 15

What are the components of the financial account?

Answer 15

1. Direct investment (land, business)
2. Portfolio investment (stocks, bonds)
3. Reserve assets (foreign currencies, gold)

Question 16

Surplus in the financial account

Answer 16

More money entering the country than leaving (ownership of domestic financial assets larger than foreign)

Question 17

Deficit in the financial account

Answer 17

More money leaving the country than entering (ownership of domestic assets is lower than of foreign)

Question 18

Direct investment

Answer 18

Direct investment - measure of the purchase of l_ong-term assets_ or the purchaser aiming to gain a lasting interest in a company in another country (land, property, businesses) - profits in the future are expected

Question 19

Portfolio investment

Answer 19

Portfolio investment - measure of bond ansd stock purchases which are not direct investment since they do not lead to a lasting interest in the company (little of stocks, gov. bonds, saving accounts) - NO PROFIT, borrowing and lending

Question 20

Reserve assets

Answer 20

Reserve assets - reserves of gold and foreign currencies which all countries hold and which are itemized in the official reserve account

Question 21

For what are reserve account used?

Answer 21

To balance out the current and financial accounts - adds or substracts from the financial account to reach an overall balance (=0)

Question 22

Why in reality the balance of payments will never be reached? How is this resolved?

Answer 22

Too many individual transcations that are not taken into account, to resolve this - NET ERRORS AND OMISSIONS is included into the account to explain why there is no balance reached

Question 23

Capital account

Answer 23

Capital account - relatively small part of the balance of payments and does not have a significant effect on the balance

Question 24

What are the components of the capital account?

Answer 24

1. Capital transfers
2. Transactions in non-produced, non-financial assets

Question 25

Capital transfers

Answer 25

Capital trasnfers are the measure of the net monetary movements gained or lost through transactions such as transfer of goods and financial assets by imigrants entering or leaving country (debt, gift taxes, inheritance taxes, death duties) -

Question 26

Transactions in non-produced, non-financial assets

Answer 26

Transactions in non-produced, non-financial assets concist of the net international sales and purchases of non-produced assets ( land/natural resources) and the net international sales and purchases of tangible assest (patents, brand names, copyrights)