6.1: Balance of Payments and Accounts Flashcards
Balance of Trade
Shows a country’s exports and imports
Trade Surplus
Exported more than imported
Trade Deficit
Imported more than exported
Balance of Payments(BOP)
Summary of a country’s international trade
Summaries are within a given year in the domestic country’s currency
What are balance payments are made up of what?
two accounts current account (CA) and capital and financial account (CFA)
What is the current account (CA) made of?
-Trades in Goods and Services (Net Exports)
- Investment Income
- Net transfers
Trades in Goods and Services
Differences b/tw a nations exports of its goods and services vs. its imports of good and services
Investments Income
income from the factors of production including payments made to foreign investors
Net Transfer
money flows from the private or public sector
Capital and Financial Account (CFA)
measures the purchases and sale of financial assets aboard . Purchases of things that continue to make money.
American buys a Japanese bond
Net Capital Outflow
the difference b/tw the purchase of foreign assets and domestic assets purchased by foreigners
Financial Account Surplus
Inflow > Outflow
Financial Account Deficit
Inflow < Outflow
What is the sum of the CA & CFA
0
Why does the CA & CFA balance out to 0?
Money that leaves the country must come back as either foreign purchases of goods/services (exports) or foreign purchases of assets. When one country buys more exports than it imports, that ‘extra’ money is used by foreigners to purchase domestic financial assets
CA or CFA, Credit or Debit: Bill, American, invest $20 million in ski resorts in Canada
CFA, Debit
CA or CFA, Credit or Debit: Korean company sell vests to the US Military
Debit, CA
CA or CFA, Credit or Debit: US company Boeing, sells twenty 747 to France
CA Credit
CA or CFA, Credit or Debit: Chinese company buys a mall in San Deigo
CFA Credit
CA or CFA, Credit or Debit: A person illegally sends money to their family in Bora Bora
CA Debit
CA or CFA, Credit or Debit: German investor buys $50,000 of US Treasury Bonds
Credit CFA
CA or CFA, Credit or Debit: Italian tourist spends 5 million in the US while American tourist 8 million in Italy
CA Debit
U.S. incomes increases relative to other countries. Does the balance of payment move towards surplus or deficit?
U.S citizens have more disposable income
Balance of Payment moves towards deficit
If the U.S. dollar depreciates relative to other countries does the balance of payment move towards surplus or deficit?
Surplus, because U.S. exports become more desirable
A country can have an increased surplus in its balance of trade as a result of…
A) an increase in domestic inflation
B) declining imports and inclining exports
C) higher tariffs imposed by its trading partners
D) an increase in capital flow
E) an appreciating currency
B
