Chapter 13

Question 1

Defn. Balance of payments (BOP)

Answer 1

a comprehensive record of the country’s international receipts and international payments between the residents and govt of a country and the rest of the world, over a period of time, usually a calendar year

Question 2

credits, debits, receipts, payments

Answer 2

• receipts of money from abroad are regarded as credits and are entered in the accounts with a positive sign. these items result in the rise in foreign exchange (ie. inflow of money and outflow of goods and services) like export rev concept?
• payments of money abroad are regarded as debits (like debt so payment) and are entered in the accounts with a negative sign. these items result in the fall in foreign exchange (ie. outflow of money and inflow of goods and services) like import expend concept?

Question 3

Current account

Answer 3

records receipts and payments. comprises of sub-accounts:

1. Visible trade (goods)
2. Invisible trade (services like shipping transportation travel govt expend. etc.)
3. Unilateral transfers (like donations to other countries in times of crisis)
4. income flows
   - interest is earned on loans to foreign govt or institutions and on deposits in foreign banks
   - profits are received (credits) from companies owned abroad and dividends that arise from holding shares in foreign companies

*largest component of current account is the balance of trade (comprises of visible and invisible trade)

Question 4

Capital and financial account

Answer 4

records the flow of funds into and out of the account and is associated with changes in ownership of assets. categorised into:

1. short-term capital inflows
   - hot money
2. long-term capital inflows
   - foreign direct investments (changes to the acquisition or sale of assets eg a factory or a farm or the takeover of a whole firm)
   - portfolio investments (changes in the holding of paper assets, such as company shares and the buying of foreign bonds)