lesson 16- balance of payments

Question 1

what is the balance of payments

Answer 1

a record of all financial dealings over a period of time between one country and all other countries

Question 2

what two accounts is the balance of payments split into

Answer 2

current and financial

Question 3

what is the current account

Answer 3

where payments for purchase and sale of goods and services are recorded

-trade in goods- ‘visibles’- exports are sold and payments come in->
positive flow
-imports -> money flow out of country -> negative flow

trade in services- ‘invisibles’- US tourist pays for UK hotel -> positive flow as money into UK
-UK tourist pays foreign hotel - negative flow (invisible exports)

primary income-interest, profits and dividends on assets owned abroad that is received into the UK. Also has to be payed out on UK assets owned by foreigners

secondary income- mainly government transfers to and from overseas organisations

Question 4

what is the financial account

Answer 4

-includes transactions that result in a change of ownership of financial assets and liabilities between a countries residents and non residents
-net balance of FDI
-net balance of portfolio investment (flows of debt and equity)
-balance of banking flows (hot money flowing in or out commercial banks)

Question 5

what is the capital account

Answer 5

very small- can largely be ignored as it takes up a tiny part of the balance of payments
-includes effect of:
-debt forgiveness
-sale/ transfer of patents
-copyrights
franchises
-leases
measures the value of changes in international transfers of ownership