Unit 5: Globalization, International Trade and Exchange Rates

Currency Market graph

Balance of payments

The record of a country's financial transactions with the rest of the world, including trade, investment, and transfers.

Current account

Buying of goods and services (exports/imports)

net income

net unilateral transfers

A component of the balance of payments that includes a country's trade in goods and services, income from abroad, and current transfers.

capital account

buying/selling of financial assets (bonds, real estate, loans, etc)

A component of the balance of payments that records a country's capital transfers, purchase and sale of assets, and foreign direct investment. mostly financial

Balance on capital account

The difference between capital inflows and outflows in a country, reflecting the net flow of capital transactions.

Foreign purchases of domestic assets- domestic purchase of foreign assets

capital account deficit

A situation where a country's capital outflows exceed its inflows, resulting in a negative balance in the capital account of the balance of payments. Buying more assets abroad than foreigns are buying in the US

capital account surplus

A condition where a country's capital inflows exceed its outflows, indicating a positive balance in the capital account of the balance of payments. Foreigners are buying more US assets than we are buying foreign assets

An inflow is

ppl buying your countrys assets

an outflow is

ppl/institutions in your country buying other ppls assets

if a country has a deficit in the current account they will have __ in the capital account

surplus

if a country has a surplus in the current account, they will have a ___ in the capital account

the balance of payments will always ___

balance to zero.

the currency exchange is always near

the equilibrium rate.

demand and supply determine the __ rate

exchange

quantity of currency demanded=

quantity of currency supplied

exports + foreign purchases of domestic assets (demand for money)=

Imports + domestic purchase of foreign assets (supply for money)