Theme 2 - 7 Balance Of Payments Flashcards
(23 cards)
What is the Balance of Payments?
The record of all international transactions (payments and receipts) between the individuals and entities (including government) of that nation and other countries during a specific time period.
What does the Current Account record?
The current account records payments for trade in goods and services plus net flows of primary and secondary income.
What does the Capital Account show?
Shows transactions in fixed assets e.g. the sale/transfer of patents, copyrights, franchises, leases and other transferable contracts. It also includes the transfer of ownership of fixed assets such as sale of land, debt forgiveness/cancellation.
What does the Financial Account record?
Records payments for the international purchase and sale of financial assets. A financial asset is classified as something which is owned in order to yield a financial gain.
What is the Trade Balance?
The difference between the value of exports and the value of imports. A trade surplus occurs when a country exports more than it imports, while a trade deficit occurs when a country imports more than it exports.
What are the implications of a trade surplus?
A trade surplus (X>M) can lead to economic growth, as it means that the country is selling more goods and services than it is buying.
What are the implications of a trade deficit?
A trade deficit (X<M) can lead to economic slowdown, as it means that the country is buying more goods and services than it is selling.
What is International competitiveness?
The ability of an economy to compete fairly and successfully in markets for internationally traded goods and services that allows for rising standards of living over time.
What is Foreign Direct Investment (FDI)?
The inflows of capital spending by foreign firms, takeovers of domestic.
What are Hot money flows?
Refer to short-term, high-speed capital flows that move in and out of countries in response to changing economic and financial conditions.
What drives Hot money flows?
Hot money flows are often driven by investment opportunities and market expectations, and can be influenced by factors such as interest rate differentials, currency exchange rates, and political and economic stability.
What are the positive impacts of Hot money flows?
On the positive side, hot money flows can provide countries with access to capital for investment and growth, and can help to stabilize financial markets during periods of uncertainty.
What are the negative impacts of Hot money flows?
On the negative side, hot money flows can lead to rapid changes in exchange rates, high inflation, and financial instability.
What is an Exchange rate?
The rate at which one country’s currency can be exchanged for other currencies in the foreign exchange (Forex) market.
What is a Bilateral exchange rate?
The rate of exchange of one single currency for another single currency.
What is the effective exchange rate?
A measure of the exchange rate of a country’s currency against a basket of currencies of a country’s major trading partners.
What is depreciation?
A fall in the value of a currency in terms of other currencies due to market forces.
What is appreciation?
A rise in the value of a currency in terms of other currencies due to market forces.
What is devaluation?
A fall in the value of a currency in terms of other currencies due to the policy of a government or central bank.
What is revaluation?
A rise in the value of a currency in terms of other currencies due to the policy of a government or central bank.
What is the Marshall Lerner Condition?
A condition that states that a currency depreciation will lead to an improvement in the current account so long as the combined price elasticities of exports and imports are greater than 1.
What is the J-curve?
It shows the possible time lags between a falling currency value and an improved trade balance. The J-Curve is the diagrammatic representation of the Marshall-Lerner Condition.
What is a global trade imbalance?
These occur when some countries run persistent surpluses on their trade accounts (with the value of exports exceeding the value of imports), whereas others experience persistent and often large external deficits.
