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Balance of Payments
Balance of Payments
A system of accounts that measures transaction of
goods, services, income, and financial assets between domestic residents, businesses, and governments and the rest of the world during a specific time period.
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Introduction
Balance of payments
Record of the economic transactions between the
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Double-Entry Accounting
Arrangement of international transactions into
a balance-of-payments account
Credit: Receipt of a payment from foreigners Debit: Payment to foreigners
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Income receipts and payments Unilateral transfers Private transfer payments Governmental transfers
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Private-sector financial transactions Direct Investment Securities Bank Claims and Liabilities
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export of goods and services A capital (financial) outflow is similar in effect to the import of goods and services.
Official settlements transactions
Movement of financial assets among official holders Official reserve assets Liabilities to foreign official agencies
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Balance-of-Payments Accounts
Current Account
Measures the flow of goods, services, income, and
transfers or gifts between domestic residents, businesses, and governments and the rest of the world.
Goods: imports and exports of tangible goods. Services: imports and exports of services, tourism and
travel, and military transactions. Income: interest and dividend payments to foreign holders of domestic financial assets. Unilateral transfers: international transfers, or gifts, between individuals and governments.
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domestic private residents and businesses and foreign private residents and businesses. Includes three categories of financial assets:
Financial assets of the domestic government
Private domestic financial assets Foreign financial assets.
Tabulates two types of asset flows Investment flows and changes in banks and brokers cash deposits that arise from foreign transactions.
and financial account must register a surplus, or net capital/financial inflow If the current account registers a surplus, the capital and financial account must register a deficit, or net capital/financial outflow
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costly Declining exports and increasing imports results in a rise in the current account deficit, or a decline in the current account surplus
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investment?5
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balances
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Capital flight causes loss of financial account surplus - deficit in overall balance of payments results
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