Balance of payments

What is the balance of payments account?

A record of the value of all transactions between the residents of one country and the residents of all other countries over a given period of time.

How is the balance of payments equation structured?

Balance of payments → current account = capital account + financial account + net errors and omissions.

What does the current account measure?

The flow of funds from trade in goods and services, as well as other income flows.

What is the balance of trade in goods?

A measure of revenue from the export and import of tangible goods over a period of time.

What does the balance of trade in services represent?

A measure of revenue from the export and import of services over a period of time.

What is net investment income?

The net monetary movement of profit, interest, and dividends moving in/out of a country over a period of time.

What are current transfers?

Net transfers that aren’t connected to the trade of goods and services.

What is included in capital account?

Capital transfers, as well as net monetary movements gained or lost, associated with transfers of goods/assets by migrants and debt forgiveness.

What does the financial account include?

The measure of investment activities such as direct investment and portfolio investment.

What is foreign direct investment?

A measure of purchases of long-term assets where the purchaser aims to gain lasting interest in a company in another economy.

What is a portfolio investment?

A measure of stock and bond purchases that do not lead to lasting interest in a company.

What are reserve assets?

Reserves of gold and foreign currencies that help ensure the balance of payments equals zero.