APMacro Unit 6

Capital & Financial Account

Records financial capital transfers and sales of assets to foreigners and purchases of assets held abroad.

Open economy

an economy that interacts with other economies. In other words, there is trade.

Balance of Payments

The accounting record of the inflows and outflows of a country with respect to the rest of the world for a period of time. Current Account Balance + Capital & Financial Account Balance = 0.

Current Account + Capital & Financial Account = 0

Formula showing mathematical relationship between current and capital & financial accounts.

Fixed exchange rate

When the government manipulates the value of a country's currency to maintain a set exchange rate.

Closed economy

an economy that does not interact with other economies. In other words, there is no trade.

Exports (X)

domestically produced goods and services that are sold abroad.

Imports (M)

foreign-made goods and services that are sold domestically

Net exports (Nx)

Exports minus imports, also known as balance of trade.

Xn=X-M

Formula for Net Exports

Trade surplus

When a country exports more than it imports to another country.

Trade Deficit

When a country imports more than it exports to another country.

Balance of Trade

Exports minus imports, also known as net exports.

Foreign Exchange (FOREX)

The exchange of one currency for another.

International Trade

Exchange of goods and services between two countries.

Current Account

Balance of Trade (Net Exports) + Net Investment Income + Net Transfers.

Net transfers

The net flow of money transferred in and out of a country (gifts from foreign countries - gifts to foreign countries), for instance charity.

Net Investment income

The net flow of profits, interest and dividends from investments (assets) in other countries (income earned from foreign countries - income paid to foreign countries). Income receipts - Income payments.

Net capital outflow

When a country invests more in other countries (outside investments) than other countries spend inside the same country (inside investments). An example of a financial account deficit (outflows>inflows)

Net capital inflow

When a country invests less in other countries (outside investments) than other countries spend inside the same country (inside investments). An example of a financial account surplus (inflows>outflows).

Appreciation

An increase in the value of one country's currency relative to another currency. Might also be referred to "strengthening".

Depreciation

A decrease in the value of one country's currency relative to another currency. Might also be referred to as "weaker".

Exchange rate

The price of one country's currency expressed in another currency.

Floating exchange rate

The value of a country's currency changes based on market forces.

Remittance

Transfer of money to another country, such as migrants who work in US in order to transfer funds back to relatives in a home country. Also included in this category is foreign aid.

Foreign Direct Investment

When a foreign company buys a business in another country.

Inflow

Money coming in, also known as credit

Outflow

Money coming out, also known as debit.

Debit

Money leaving your account, also known as outflow.

Credit

Money coming into your account, also known as inflow.