Balance of Payments

• Balance of payments


  A financial record of a country's transactions with the rest of the world, usually over one year
• Debit items


  Payments made to a foreign consumer, firm, or government
• Credit items


  payment received from a foreign consumer, firm, or government
• A surplus exists when the total value of credit items is greater than the total value of debit items.
• A deficit exists when the total value of debit items is greater than the total value of credit items.
• Current account


  A record of all trade flows, income flows, and income transfers between countries
• Balance of trade / Trade balance (Current account)


  The difference between a country's total export earnings and total import expenditure on goods and services
• Income (Current account)


  Net income from abroad (Income earned abroad minus income sent abroad)
• Current transfers (Current account)


  Net inflow of money where there is no corresponding output of goods or services
• Capital account


  A record of capital inflows and capital outflows in a country
• Capital transfers (Capital account)


  Different forms of capital inflows and outflows of a country (such as debt aid, debt forgiveness, and the flow of money by immigrants and emigrants)
• Transaction in non-produced, non-financial assets (Capital account)


  Net acquisition of non-produced, non-financial assets (such as trademarks, brands, patents, natural resources that have not been produced)
• Financial account


  A record of transactions regarding the change of ownership in assets.
• Foreign direct investment (FDI) (Financial account)


  1. Investment in physical capital made by a foreign firm
  2. A 10% or more ownership of an enterprise by a foreign firm
• Portfolio investment (Financial account)


  Stocks of investment assets (such as stocks, shares, government bonds)
• Reserve assets (Financial account)


  Stocks of foreign currencies and liquid assets such as gold reserves (to be used by central bank in monetary policy)
• Official borrowing (Financial account)


  Government borrowing as opposed to an individual or a private firm
• Components of current account include:

  • Balance of trade in goods
  • Balance of trade in services
  • Income
  • Current transfers
• Components of capital account include:

  • Capital transfers
  • Transactions in non-produced, non-financial assets
• Components of financial account include:

  • Foreign direct investment
  • Portfolio investments
  • Reserve assets
  • Official borrowing