6.1 Balance of Payments Accounts

• What is the Balance of Payments (BOP)?

  Record of economic transactions
• Primary income in the Current Account includes income received from or paid to foreign countries
• Match the Capital and Financial Account component with its description:

  Capital Transfers ↔️ Related to fixed assets or debt forgiveness

  Foreign Direct Investment ↔️ Investments in foreign entities for control

  Portfolio Investment ↔️ Purchase of stocks and bonds in foreign markets

  Other Investments ↔️ Loans and other financial assets
• If a country has a Current Account surplus, it must have a Capital & Financial Account deficit


  True
• Exports of goods are included in the Current Account


  True
• The Current Account represents the flow of goods, services, and income
• What does a Current Account surplus indicate for a country?

  Inflow of funds
• The Balance of Payments (BOP) is a record of all economic transactions between residents of a country and the rest of the world
• The Current Account components represent the flow of goods, services, and income between a country and the rest of the world.

  True
• If a country exports more goods than it imports, it has a Current Account surplus and a Capital & Financial Account deficit.


  True
• If the US dollar depreciates against the euro, American goods become more affordable for European buyers.

  True
• The Balance of Payments (BOP) is divided into two main accounts: the Current Account and the Capital & Financial Account
• Order the components of the Current Account based on their typical contribution to a country's trade balance:

  1️⃣ Goods

  2️⃣ Services

  3️⃣ Primary Income

  4️⃣ Secondary Income
• Foreign Direct Investment (FDI) involves purchasing stocks in foreign markets

  False
• The relationship between the Current Account and Capital & Financial Account ensures overall financial stability
• The Current Account and Capital & Financial Account offset each other to ensure the overall Balance of Payments is balanced
• A depreciation of the US dollar against the euro can increase US exports and reduce US imports.


  True
• Match the Current Account component with its description:

  Goods ↔️ Exports and imports of physical merchandise

  Services ↔️ Exports and imports of intangible services

  Primary Income ↔️ Income received from foreign countries

  Secondary Income ↔️ Unilateral transfers
• What are the two main accounts of the Balance of Payments?

  Current and Capital & Financial
• The Current Account and Capital & Financial Account offset each other to ensure the Balance of Payments is balanced
• Match the scenario with its impact on the Balance of Payments:

  Trade surplus ↔️ Deficit in the Capital & Financial Account

  Excess earnings invested abroad ↔️ Maintains overall BOP equilibrium
• The 'Goods' component of the Current Account includes exports and imports of physical merchandise
• Order the following impacts of Current Account surpluses and Capital & Financial Account deficits:

  1️⃣ Current Account surplus: Inflow of funds

  2️⃣ Capital & Financial Account deficit: Outflow of funds

  3️⃣ Overall Balance of Payments: Zero
• Arrange the following impacts of exchange rate changes on exports and imports:

  1️⃣ Currency Depreciation: Exports become cheaper

  2️⃣ Currency Depreciation: Imports become more expensive

  3️⃣ Currency Appreciation: Exports become more expensive

  4️⃣ Currency Appreciation: Imports become cheaper
• A country with a trade surplus might invest its excess earnings abroad, creating a deficit in the Capital & Financial Account.


  True
• Match the component of the Capital and Financial Account with its description:

  Capital Transfers ↔️ Forgiveness of debt

  Foreign Direct Investment ↔️ Investment to control foreign entities

  Portfolio Investment ↔️ Purchase of stocks and bonds

  Other Investments ↔️ Loans and financial assets
• The Balance of Payments (BOP) is influenced by factors such as exchange rates, trade policies, inflation rates, income levels, and government debt
• Current Account surpluses can boost economic growth, while deficits may slow growth due to increased imports