BOP 1 PPT Flashcards
BOP Definition
accounting record of all economic transactions between residents of Aus and residents of rest of world.
Who are considered residents in BOP?
Individuals, businesses, and the government.
How does the BOP ensure accuracy in recording transactions?
Every transaction has two equal and opposite entries: one debit and one credit.
What type of entry is an export of currency?
: Credit entry.
What type of entry is an import of currency?
Debit entry.
An Australian company sells $100 million of iron ore to China. What are the credit and debit entries?
Credit: Export of goods and services.
Debit: Import of currency.
An Australian person buys $10 million in Subway shares in the USA. What are the credit and debit entries?
Credit: Export of currency.
Debit: Increase in foreign assets.
What are the three main accounts in the Balance of Payments?
Current Account, Capital Account, Financial Account.
How are the Current Account and Capital & Financial Account linked?
The balance on the Current Account should equal the balance on the Capital & Financial Account.
What transactions are recorded in the Current Account?
Transactions related to goods, services, and income flows.
What is recorded in the Goods Account?
: Transactions involving physical goods (e.g., cars, food, TVs).
How is the net merchandise trade balance calculated?
Total value of goods exported minus total value of goods imported.
What is recorded in the Services Account?
Transactions involving services such as tourism, banking, and education.
What does the Trade Balance include?
The total value of all goods and services exported minus the total value of all imports.
What are the two components of the Income Account?
Primary Income and Secondary Income.
Q: What is included in Primary Income?
Q: What is included in Primary Income?
Compensation for employees (wages) and investment income (e.g., dividends, interest).
What is Secondary Income?
Transactions where no economic value is received in return (e.g., foreign aid, gifts, donations).
How is the Balance on Goods and Services calculated?
Goods Account + Services Account.
How is Net Income calculated?
Primary Income + Secondary Income.
How is the Balance on the Current Account calculated?
Balance on Goods & Services + Net Income.
What are the four main categories of the Financial Account?
Direct Investment, Portfolio Investment, Reserve Assets, Other.
Where is the inflow/outflow of physical currency recorded?
The “Other” category of the Financial Account.
Why do Net Errors and Omissions exist in BOP?
Due to measurement errors, timing differences, or unrecorded transactions.
What is the purpose of Net Errors and Omissions?
To ensure the Current Account + Capital & Financial Account = Zero.
