balence of payments-flascards Flashcards
what does the capital account include
The capital financial account of the balance of payments covers transactions that result in a change of ownership of assets e.g. shares bods, property, patents, between one country and the rest of the world.
-transfers of ownership of assets across boarders and purchases and sales of some non-financial assets
FDI is also included in the capital financial account
what does the current account include
Definition- a record of a countries net trade in exports, imports, net primary income and net secondary income with the rest of the world.
trade in goods -exports and imports of goods large deficit in the UK ( visible
trade in services-Trade in services: exports and imports in services –surplus in UK – banking and insurance ( invisible)
primary income flows of income in and out of a country, income generated from foreign assets, net foreign remittances by migrant workers e.g. UK worker works abroad and earns income if brings back has a positive effect on current account, rental incomes – measuring the VALUE at money flows- UK deficit on primary income is explained by rapid growth in investment into the UK by investors from countries such as China and India-creating flows of investment back into their countries
Secondary income: transfers of money between countries e.g. private transfers e.g. wage workers overseas back to families, foreign aid, grants
what is the financial account
direct investment-opening/ buying a new or existing business located outside the country
net investment from abroad e.g. if a UK firm built a factory in Japan it would be a debit item on the UK financial account -outflow of FDI
Portfolio investment- financial flows such as the purchase of bonds, saving in banks including- financial assets
e.g. a foreign investor buying shares in UK business portfolio investment inflow
Short term monetary flows/ movements of capital- ’ hot money flows ’ to take advantage if better interest rates- credit item on financial account
