Balance of Payments, Exchange Rates (keywords) - T2&4 CC7

Balance of Payments

The record of all international transactions (payments and receipts) between the individuals and entities (including government) of that nation and other countries during a specific time period.

Current Account

The current account records payments for trade in goods and services plus flow of primary and secondary income.

Capital Account

Shows transactions in fixed assets e.g., the sale/transfer of patents, copyrights, franchises, leases and other transferable contracts. It also includes the transfer of ownership of fixed assets such as sale of land, debt forgiveness/cancellation.

Financial Account

Records payments for the international purchase and sale of financial assets. A financial asset is classified as something which is owned in order to yield a financial gain.

Trade Balance

The difference between the value of exports and the value of imports. A trade surplus occurs when a country exports more than it imports, while a trade deficit occurs when a country imports more than it exports. The trade balance can have a number of implications for a country’s economy.

A trade surplus (X>M) can lead to economic growth, as it means the country is selling more goods and services that it is buying. A trade deficit (X<M) can lead to economic slowdown, as it means that the country is buying more goods and services than it is selling.

International Competitiveness

The ability of an economy to compete fairly and successfully in markets for internationally traded goods and services that allows for rising standards of living over time.

Foreign Direct Investment (FDI)

The inflows of capital spending by foreign firms, takeovers of domestic businesses by foreign-owned businesses/investors.

Hot Money Flows

Referred to short-term, high-speed flows that move in and out of countries in response to changing economic and financial conditions.

Hot money flows are often driven by investment opportunities and market expectations, and can be influenced by factors such as interest rate differentials, currency exchange rate, and political and economic stability.

Hot money flows can have both positive and negative impacts on a country’s economy. On the positive side, hot money flows can provide countries with access to capital for investment and growth, and help to stabilise financial markets during periods of uncertainty. On the negative side, hot money flows can lead to rapid changes in exchange rates, high inflation, and financial instability.

Exchange Rate

The rate at which one country’s currency can be exchanged for the other currencies in the foreign exchange (ForEx) Market. It is the price of one currency in terms of another - in other words, the purchasing power of one currency against another.

Bilateral Exchange Rate

The rate of exchange of one single currency for another single currency.