Balance of payments Flashcards
What does the balance of payments record?
Records all the flows of money between the residents of that country and the rest of the world
What are the two main parts to the balance of payments?
Current account
Capital and financial account
What does the current account do?
Record of a countries transactions of exports, imports, investment income and transfers
What does the capital account do?
Relatively small and a record of transfers of fixed assets
What does the financial account do?
Record of country’s financial transaction with rest of world
What is recorded on the current account?
Trade in goods
Trade in services
Net investment income
Current transfers
What is trade in goods (and example)?
Visible trade eg. consumer durables
What is trade in services? (and example)
Invisible trade eg. tourism, insurance
What is net investment income?(and example)
Primary income
eg. profits, interests and dividends and income flows related to factors of production, overseas investment
What are current transfers? (and example)
secondary income
government payments to international organisations
eg. foreign aid, grants and gifts
What are examples of what the capital account does?
The sale/transfer of patents, copyrights, franchises, leases and other transferable contracts
Also includes ownership of fixed assets eg. sale of land
What is a financial asset?
Something which is owned in order to yield a financial gain
What is recorded on the financial account?
Direct investment (FDI) Portfolio invesment Financial derivatives Other investments Reserve assets Balancing item
Is credit an inflow or outflow?
Inflow
Is debt an inflow or outflow?
Outflow
