the balance of payments

Question 1

what is the balance of payments?

Answer 1

the balance of payments is a record of all financial transactions made between consumers, businesses and the government in one country to another

Question 2

what type of transactions does the balance of payments record?

Answer 2

the balance of payments records all international transactrions

Question 3

what are the three main components of the balance of payments?

Answer 3

the three main components of the balance of payments are:

• the current account
• the capital account
• the financial account

Question 4

what is the current account?

Answer 4

the current account is a country’s trade balance plus net income and direct payments

Question 5

what are the four components of the current account?

Answer 5

the four components of the current account are:

• the trade in goods
• the trade in services
• net primary income
• net secondary income

Question 6

what are the trade of goods and services referred to?

Answer 6

the trade of goods and services is referred to as the trade balance

Question 7

what are visible trades?

Answer 7

visible trades are goods which are imported or exported

Question 8

what are invisible trades?

Answer 8

invisible trades are services which are imported or exported

Question 9

what are examples of primary income?

Answer 9

primary income includes:

• interest
• profits
• dividends
• migrant remittances

DIMP

Question 10

what are migrant remittances?

Answer 10

migrant remittances are the transfers of money by a foreign worker back to their home country (i.e. a UK citizen working overseas and sending the money back to the UK)

Question 11

what are examples of secondary income?

Answer 11

secondary income includes:

• contributions to the EU
• military aid
• overseas aid

Question 12

what is the capital account?

Answer 12

the capital account is the sale or transfer of patents, copyrights, leases and other transferable contracts and good will
(otherwise: the transfer of ownership of fixed assets)

Question 13

what is the financial account?

Answer 13

the financial account are the transactions that result in a change in the ownership of financial assets and liabilities between UK residents and non-residents

Question 14

what transactions does the financial account include?

Answer 14

the financial account includes:

• the net balance of FDI
• the net balance of portfolio flows
• the balance of banking flows

Question 15

what are examples of porfolio flows?

Answer 15

portfolio flows includes the inflows and outflows of debt and equity

Question 16

what is an example of banking flows?

Answer 16

banking flows include hot money flowing in and out of a banking system

Question 17

what is a balancing item?

Answer 17

a balancing item is the estimated errors and omissions

Question 18

what is a current account surplus?

Answer 18

a current account surplus is where the overallcurrent account is positive (more money flowing into the country than out)

Question 19

what is a current account deficit?

Answer 19

a current account deficit is where the overall current account is negative (more money is flowing out of the country than in)

Question 20

what does the UK have a deficit in?

Answer 20

the UK has a deficit in the trade of goods and the net secondary income

Question 21

what does the UK have a surplus in?

Answer 21

the UK has a surplus in the trade of services and the net primary income