Balance of Payments

Question 1

What is balance of payments?

Answer 1

Recording all transactions made between consumers,businesses and the government in one country with other nations

Question 2

Inflows of foreign currency

Answer 2

counted as positive entry - exports

Question 3

Outflows of foreign currency

Answer 3

Negative entry - Ei - imported goods and services

Question 4

What three accounts can balance of payments be spilt into?

Answer 4

1. Capital account
2. Current account
3. Financial account

Question 5

What is a current account?

Answer 5

The current account is like a financial report card for a country. It keeps track of its transactions with other countries. This includes the buying and selling of goods (like electronics or clothes), services (like tourism or banking), income earned from abroad, and transfers (like foreign aid or money sent by people working in other countries). If a country is selling more than it’s buying (X>M), it has a surplus. If it’s buying more than it’s selling, it has a deficit. The current account helps us understand how well a country is doing economically in its interactions with the world (X<M).

Question 6

Examples of trade balance in goods

Answer 6

Raw Materials

Question 7

Net primary income

Answer 7

Profits, interest and dividends

Question 8

What is capital account?

Answer 8

• Special savings account for a country in economics.
• Tracks buying and selling of assets and investments between a country and the rest of the world.
• Includes foreign direct investments, portfolio investments, changes in foreign exchange reserves.
• Purpose is to show how a country is investing and saving on a global scale.
• Works with the current account to provide a comprehensive view of a country’s economic interactions with other nations.

Question 9

What is a financial account?

Answer 9

• Component of a country’s balance of payments in economics.
• Records international transactions involving financial assets, like stocks and bonds.
• Tracks changes in ownership of financial assets.
• Includes foreign direct investments, portfolio investments, and other financial instruments.
• Reflects the flow of money for investment purposes.
• Works alongside the current account and capital account to provide a complete picture of a country’s economic transactions with the rest of the world.

Question 10

What does a current account deficit tell us?

Answer 10

few exports- low productivity/innovation
mant exports- we aren’t producing exports in demand
Weak NPI/NSI

Question 11

What is NPI/NSI

Answer 11

1. NPI means an investment that isn’t doing well, not making the expected returns.
2. NSI refers to an investment that’s not standard, something different from the usual stocks and bonds, like hedge funds or other unconventional options. Both help assess how investments are performing and guide decisions on financial strategies.

Question 12

What doesn’t it tell us?

Answer 12

Types of goods and services being exported/imported!