Balance of payments Flashcards
What is the balance of payments?
The balance of payments is a record of all financial transactions made between the three economic agents with external economies.
What is debit?
When money leaves the country’s account.
What is credit?
When money enters the country’s account.
How many accounts are there in the balance of payments?
Three
What are the three accounts in that balance of payments?
Current account
Financial account
Capital account
What is the financial account?
Transactions that result in a change of ownership of financial assets and liabilities between countries.
What should the final value of the three accounts be?
Zero
What is the current account?
The current account records the payments for goods and services, plus investment income and transfers, between an economy and the rest of the world. This is the imports and exports from a country.
What is the balance of payments account?
Consists of good and services account, the primary and secondary income account, capital account and financial account.
What is the balance of trade?
The values of exports of goods and services minus the value spent on imported goods and services.
What is a current account deficit?
A deficit occurs when the value of imports of goods/services/investment incomes/secondary incomes is greater than the value of exports.
What is the current account surplus?
A surplus occurs when the value of exports of goods/services/investment incomes/secondary incomes is greater than the value of imports.
What is foreign direct investment?
An investment made by a firm or individual in one country into business interests located in another country.
What is hot money (short term capital) flows?
Money that moves rapidly around the global financial system seeking the best “risk adjusted” rate of return.
What is investment income?
The most common types of investment income is income made on dividends and on interest.
