Balance Of Payments Flashcards
What is the balance of payments account?
This is a record of all financial dealings over a period of time between economic agents of one country and all other countries
What are the 2 components balance of payments account can be split into?
Current Account
Capital and Financial Accounts
What is the current account?
The current account is where payments for the purchase and sale of goods and services are recorded
What is the capital and financial account?
The capital and financial accounts are where flows of money associated with saving, investment, speculation, and currency stabilisation are recorded
How are flows of money recorded on the balance of payments account?
Flows of money into the country are given as a positive (+) whereas money out of the country are given as negative (-)
What is the trade in visibles?
This is the trade of raw materials such as copper, oil, semi-manufactured goods, and finish manufactured goods
What are visible exports?
Visible exports are goods which are sold to foreigners. These are goods that leave the country, whilst payments for these goods go in the opposite direction. Hence, they are recorded with a positive sign
What are visible imports?
Visible imports are goods which are bought by domestic residents from foreigners. Goods come into the country while money flows out. Hence, they give a negative sign
What are exports of invisibles?
Exports of invisibles are services bought by foreigners so money flows into the UK. Invisible service exports are called export credits in services
What are invisible imports?
Services which are brought from other countries so money flows abroad. They are also called debits
What is primary income?
A flow of money that is not a result of a trade in goods and services. Results from the loan of the factors of production abroad. This could be generated from interest profits and dividends on assets owned abroad
What is secondary income?
Secondary income is a range of mainly government transfers to and from overseas organisations such as the EU
What are primary and secondary income examples of?
Invisibles
Trade in services
What is the current balance?
The difference between the value of exports and total imports
It can also be calculated by adding the balance of trade in goods with that of the services, income, and current transfers
What does it mean if a current account is in surplus?
When exports are greater than imports. The money flowing into the country from trae in goods and services, as well as primary and secondary income, are greater than that flowing out of the country from these transactions
