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PART A (QUESTION 3) Discuss four (4) major components of the Balance of Payment (BOP) (10m) There are 4 major accounts: 1. 2. Current Account Capital Account
3.
4.
1. CURRENT ACCOUNT
- Records 4 types of transaction: i. Exports and imports of goods . For example cotton, rice. if import > export (deficit) If export > import (surplus) ii. Exports and imports of services. For example banking services, health services iii. Investment income Government sell bond to foreigners to get money iv. Gifts Expatriate send their income to their home country (private unilateral transfers) Gifts between residents of one country and another country (public unilateral transfers)
MGT 361 (balance of payment)
2. CAPITAL ACCOUNT
Records purchases and sales of assets between residents of one country and other countries Can be divided into 2 (Foreign Direct Investment and Foreign Portfolio Investment)
Maturity Motivation Typical Investment
> 1 year
Indeterminate
Portfolio (long-term)
Selling a domestic long-term asset to a foreigner (not for purpose of control) Selling a domestic asset to a foreigner for purpose of control
FDI