Balance of Payments Flashcards
Balance of payments
A record of all transactions (exports, imports, income, transfer and capital flows) that take place between the residents of one country (e.g. Germany) with the residents of all other countries over a period of time.
What is a stock?
The stock of a company is sold in units called shares. A stock is a collection of shares
What is a share?
A share is a unit of ownership, or equity, in a company or a corporation
What is transfer?
Transaction that does not involve an exchange
Debt forgiveness
The voluntary cancellation of all or part of a debt obligation
Bonds
Bond is a type of loan which is used by big corporations or governments to raise capital by selling IOU to the general public
Direct investment
Investment where a resident of one country controls or significantly influences the management of a foreign enterprise
(Company to Company movement - Investment)
Portfolio investment
A grouping of assets such as stocks, bonds, and cash equivalents
Investment grants
Capital transfers made by governments or international organisations to fund specific investment projects
e.g. large construction projects
Payments in Current account
Exports/Imports:
- Goods/Services
- Visibles/Invisibles
Income: These are different forms of income
- Wages (for labor)
- Dividends (for shares)
- Interest (for capital)
- Remittances (sent home from workers abroad)
Current Transfers:
- (Foreign) Aid
Payments in Capital Account
(Capital flows)
- Funds
- Debt (& debt forgiveness)
- Government grants
- Capital
- Non-Financial Assets (e.g. Land, Real Estate, Companies)
Payments in Financial Account
Financial Assets:
- Shares
- Stocks
- Bonds
Loans
Reserve Assets (e.g. currencies, gold)
Direct Investment
Portfolio Investment
Definition of Current Account
Is a measure of the flow of funds from trade in goods and services, income and current transfers
What is Capital Account
- a measure of buying and selling of assets between countries
E.g. of assets:
- Land, Real Estate, Companies
- Capital transfers
- Transactions in non-produced, non-financial assets
E.g. of Non-produced, non-financial assets:
- Natural resources
- Contracts, leases and licenses
- Marketing assets (brand names, trademarks, logos, sale of franchises, copyrights, domain names)
- Drilling rights
Definition of Financial Account
The net change in foreign ownership of domestic financial assets
- Direct Investment
- Portfolio Investment
- Reserve assets