20 terms

Balance of Payments

What is a nation's balance of payments?
The sum of all the transactions that take place between the residents of a country and the residents of all other countries
How is the Balance of Payments measured?
By the Bureau of Economic Analysis
2 categories
a. The Current Account
b. The Capital Account
What is important to remember about these two accounts?
they always balance out
What does the Current Account do?
Records transactions between the US and the rest of the world in the following categories
1. Exports of goods from the us
2. Export of services from the us
3. Income receipts to americans who earn interest in foreign currencies

In Foreign countries
1. Imports of goods TO the us
2. Imports of services TO the us
3. Income payments TO foreigners who earned interest in dollars in the us
What does the Capital/Financial Account do?
Records transactions between the US and the rest of the world in the following categories

1. US owned assets in foreign countries
2. Financial asset
3. Physical asset

1. Financial assets
2. Physical assets



What things are considered financial assets?
1. stocks
2. bonds
3. financial investment instruments
What are physical assets?
1. Land
2. Factories
3. Businesses
4. Something that is not normally moveable
What is a credit?
When foreigners purchase a U.S. produced good/service/financial asset, this is called a Credit
What is a debit?
When US citizens purchase a foreign produced good/service/financial asset, this is called a debit.
What do credits do to the US dollar?
Appreciate the US dollar(financial inflow) and depreciate the foreign currency(Financial outflow)
What do debits do to the U.S. dollar?
Depreciates the US dollar (financial outflow) and appreciates the foreign currency (financial inflow)
Export of goods/services
goods/services created in the U.S. and sold to foreigners

Represents credit. Tracked in Current Account
Income Receipts
Money that Americans earn on savings and investments, but is MADE in foreign countries.

Represents credit. Tracked in Current Account.
Imports of goods/services
goods/services made in foreign countries and bought by US customers

Represents debit. Tracked in Current Account
Income Payments
Money that foreigners earn on investments they have made in the U.S.

Represents Debit. Tracked in the current account
Unilateral Transfer Payment
Remittances--money that foreigners in the U.S. send home minus money that u.s. citizens in foreign countries send back to the u.s. If negative, more money is going out than coming in and net result is a debit.

Tracked in the current account
U.S. owned assets abroad?
Financial/physical assets that Americans own in foreign countries.

Tracked in Capital/financial market
Foreign owned assets in the U.S.
Financial/physical assets that foreigners own in the U.S.

Tracked in the Capital/financial market
Statistical Discrepancy
a "catch-all" category. These categories will contain miscounts and omissions. This is where the balancing out of the two accounts can be accounted for.
Official Reserves
Foreign currency reserves that the gov't/financial system needs to have available so ppl, businesses, and gov't can purchase foreign goods.

A negative indicates the supply of dollars is increasing to purchase foreign currencies to meet the above requirement.