Balance of Payments, Exchange Rates

T2 & 4 CC7 (keywords)

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 imports. A trade surplus occurs when exports exceed imports, promoting economic growth, while a trade deficit occurs when imports exceed exports, potentially leading to economic slowdown.

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

Short-term capital flows in and out of countries based on economic conditions and investment opportunities. They can stabilize markets but may also cause volatility, 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.