4.6.3 The balance of payments

• What is the balance of payments defined as?

  Country's transactions with the world
• What does the current account record in the balance of payments?

  Net trade and income
• The current account, capital account, and financial account must always sum to zero in the balance of payments.

  True
• The capital account records net capital transfers and the acquisition/disposal of non-produced, non-financial assets
• The balance of payments must always balance, meaning the sum of the current account, capital account, and financial account must equal zero.

  True
• What does the capital account primarily focus on?

  Ownership transfers of assets
• What is included in the income balance of the current account?

  Overseas investment income
• The current account records net trade in goods, services, income, and current transfers
• The Current Account records net trade in goods and services
• What does the Current Account primarily focus on?

  Trade-related activities
• The Capital Account covers income from wages and profits.

  False
• The Trade Balance is the difference between exports and imports of goods
• Order the components of the Current Account based on their definitions:

  1️⃣ Trade Balance: Difference between exports and imports of goods

  2️⃣ Services Balance: Difference between exports and imports of services

  3️⃣ Income Balance: Net income from wages, profits, and investments

  4️⃣ Current Transfers: Unilateral payments without goods or services exchanged
• Direct investment involves foreign ownership or control of business operations
• Capital flows affect a country's economic stability and growth.


  True
• What does the Financial Account record?

  Net acquisition and disposal of financial assets and liabilities
• What is the primary function of the balance of payments?

  Record transactions
• The current account records the net trade in goods and services
• Match the component of the balance of payments with its description:

  Current Account ↔️ Net trade and income

  Capital Account ↔️ Net capital transfers

  Financial Account ↔️ Financial asset transactions
• What does the current account primarily focus on?

  Trade-related activities
• The trade balance is the difference between exports and imports of goods
• A positive current account balance indicates more money flowing into the country than out.


  True
• What is the balance of payments?

  Record of transactions
• The balance of payments must always sum to zero.

  True
• The Capital Account includes net capital transfers and disposal of non-produced, non-financial assets
• What are the four main components of the Current Account?

  Trade balance, services balance, income balance, current transfers
• A positive current account balance indicates more money flowing out of the country.

  False
• What are the three components of the Capital Account?

  Direct investment, portfolio investment, official reserves
• The balance of payments must always balance to zero
• Each transaction in the balance of payments affects the specific component it falls under.


  True
• The balance of payments must always balance, with the current account, capital account, and financial account summing to zero
• The Capital Account records net trade in goods and services.

  False
• The Current Account focuses on trade and income, while the Capital Account covers transfers of ownership and non-produced assets.

  True
• The Trade Balance is the difference between exports and imports
• What are the three components of the Capital Account?

  Direct, portfolio, official
• The balance of payments must always balance because every transaction has a corresponding inflow and outflow
• Match the balance of payments component with its definition:

  Current Account ↔️ Net trade in goods and services

  Capital Account ↔️ Net capital transfers

  Financial Account ↔️ Net acquisition of financial assets
• What is the impact of debt forgiveness on the capital account?

  Increases surplus
• How does a country finance a current account deficit?

  Borrowing or investment inflows
• Match the account with its focus:

  Current Account ↔️ Trade and income

  Capital Account ↔️ Ownership and non-produced assets