Topic 2- Balance of Payments Flashcards
Balance of Payments
A summarized record of all transactions that a country (such as Australia) has with the rest of the world over a given period of time.
Credit
A transaction that results in money flowing from the rest of the world to Australia.
Debit
A transaction that results in money flowing from Australia to the rest of the world
Current account
The part of the BoP that shows the receipts and payments for trade in goods and services, transfer payments and income flows between Australia and the rest of the world in a given time period. These are non-reversible payments.
Capital and financial account
Records the borrowing, lending, sales and purchases of assets between Australia and the rest of the world. These are reversible financial transactions.
Financial derivatives
Financial assets whose value depends on other underlying assets.
BOGS
Exports-imports
What does Net Primary Income include?
Income from foreign investments - servicing costs of foreign liabilities.
What does Net Secondary Income include?
Unrequited inflows - unrequited outflows, e.g., untied foreign aid, remittances.
What does the Capital account include?
Capital transfers and the purchase and sale of non-produced, non-financial assets (patents, copyrights, trademarks and franchises). It also includes foreign aid that is tied to specific capital projects.
What does Other investment include?
All other non-securitised transactions, e.g., trade credits, accounts payable/receivable, transfers of currency and bank lending, bank loans.
What are Reserve assets?
Transfers of assets by the central bank to foreigners.
What goes in the financial account?
Foreign direct investment, portfolio investment, financial derivatives, other investment, and reserve assets.
Double entry bookkeeping
Every transaction has an offsetting one that results in the BoP being balanced.
