balance of payments ch11 Flashcards
(16 cards)
what is the balance of payments
summarizes the international transaction of a country. current account balance+financial account balance must equal 0
types of balance of payment
- international trade (current account)
- international investment (financial account)
what does current account include
- countries imports and exports
- trade of services
- income on financial assets
- transfers between counties
what does financial account include
- FDI
- portofolio investment
- financial transactions
bookkeeping rules
transactions that require sale of local currency
what does credit + mean in bookkeeping rules
local currency in
what does debit - mean in bookkeeping rules
local currency out
what does surplus mean in current account
when a country is earning more from exports than it is spending on imports
why can surplus happen in current account
- strong export sector
- weaker domestic currency
- lower production costs
what does defecit mean in current account
when a country spends more on imports than it earns on exports
why can deficit in current account happen
higher domestic income
stronger domestic currency
surplus meaning in financial account
when a country receives more financial investment that it makes overseas investment
what leads to financial account surplus
- high interest rates
- stable and growing economy
- seen as safe investment
what is deficit in financial account
when a county makes more outward investment
what leads to defecit in financial account
- seeking higher roi
- investing in developing countries
- companies acquiring foreign business
significance of Bop
- evaluate trade performance
- analyzing investment flows
- monitoring exchange rate
- formulating economic policies
- assessing global economic risks
