Capital, Financial, and Current Accounts in the Global Economy

Vocabulary flashcards covering the Capital, Financial, and Current Accounts, Exchange Rate Systems, Country Classifications, and Globalisation based on the lecture material.

Capital and Financial Account

The component of the balance of payments that captures the net change in ownership of assets and liabilities, consisting of the capital account and the financial account.

Capital Account

A small component of the capital and financial account that records capital transfers and transactions involving non-financial, non-produced assets.

Capital Transfers

Transactions where one party transfers ownership of something to another party without receiving anything in return, such as foreign aid or the transfer of assets to or from foreigners.

Non-financial, Non-produced Assets

Transactions involving intangible assets (such as copyrights and trademarks) and rights to use land or water (such as for mining or fishing).

Financial Account

The component of the capital and financial account that records transactions between parties involving a change in ownership of Australia's assets or liabilities, reflecting investments.

Direct Investment

Long-term capital investment in a business with significant ownership ($>10{\%}$), such as the purchase of machinery, buildings, or factories.

Portfolio Investment

The purchase of equity or debt in a foreign business where the investor has insignificant influence ($<10{\%}$), such as buying shares, bonds, or units.

Reserve Assets

Financial assets involving the purchase or sale of reserve assets held by the Reserve Bank of Australia.

Fixed Exchange Rate

A monetary system where a country's currency is pegged or fixed to the value of another currency or a basket of currencies, remaining constant without fluctuating based on market forces.

Anchor Currency

A stable and widely accepted currency (such as the US Dollar, Pound Sterling, or Euro) or a basket of currencies to which a domestic currency's value is directly linked in a fixed exchange rate system.

Central Bank Intervention

The active buying or selling of domestic currency by a central bank in the foreign exchange market to control supply and demand and maintain a fixed exchange rate.

Impossible Trinity (Trilemma)

An economic trilemma stating that a country can only choose two of three options at one time: free capital mobility, exchange-rate management (fixed exchange rate), and monetary autonomy.

Bretton Woods System

A monetary regime introduced in 1944 where currencies were pegged to the US dollar, which in turn was pegged to gold; it collapsed in 1971 when President Nixon devalued the dollar against gold.

Trade Liberalization

The concept and policy of increasing trade amongst countries by removing or reducing trade barriers.

Advanced Economies

Democracies with market-based economies, limited government intervention, and average per capita incomes over \text{US}\\$40,000 per annum, representing $42.1{\%}$ of global economic output and $14{\%}$ of the population.

G7 (Group of Seven)

Major advanced economies comprising the USA, Japan, Germany, UK, France, Italy, and Canada, representing $30.7{\%}$ of economic output and $10.1{\%}$ of world population.

Newly Industrialised Economies (NIEs)

Recent advanced economies that experienced significant wealth increases in the late 20th century, comprising South Korea, Taiwan, Hong Kong, Macao, and Singapore.

Emerging Economies

Second-world countries moving towards advanced status with high levels of economic growth and average per capita incomes under \text{US}\\$40,000.

BRIC

Major emerging economies consisting of Brazil, Russia, India, and China, which demonstrated sustained high rates of economic growth in the 2000s and account for $31.1{\%}$ of economic output and $41.2{\%}$ of world population.

OPEC

Organization of Petroleum Exporting Countries, which holds $80{\%}$ of the world's proven oil reserves and includes key developing nations playing a vital role in the global economy.

Current Account

The component of the balance of payments capturing the net flow of money resulting from international trade across four subcategories: Goods, Services, Net primary income, and Net current transfers.

Net Primary Income

Income inflows (credits) or outflows (debits) for residents resulting from financial investments, such as interest, dividends, and royalties.

Net Current Transfers

Movements of funds for consumption purposes where there is no reciprocal activity, such as foreign aid or assets transferred by migrants.

Globalisation

The increasing level of economic integration between countries, leading to the emergence of a global marketplace.

Multi-national Corporations (MNCs)

Enterprises that manage production or deliver services in more than one country, establishing large-scale international trading channels.

Regional Trading Blocs

Alliances formed by countries with similar goals (such as the European Union or ASEAN) that abolish internal trade barriers to achieve economic integration.

Financial Contagion

The spread of financial shocks from one region to contaminate others, increasing global economic risk (such as during the Global Financial Crisis of 2008-09).