Open Economy: An economy that interacts with the rest of the world through international trade

International trade: The flow of goods and services across borders

Foreign investment: Flow of financial capital across borders

Financial capital: Money saved by savers in the form of stocks, bonds, savings accounts, and any way they are accessible to borrowers.

Outflow of financial capital: Trade surplus as well as residents of the country in question investing outside of the country (foreign investment).

Inflow of financial capital: Trade deficit as well as investment into the country from foreign investors.

Supply of financial capital: Investors give money to borrowers through straight-up money, stocks, bonds, and savings accounts, expecting a rate of return.

Demand of financial capital: Borrowers needing funds take money from investors promising to return the money over a period of time with an added rate of return.

BOP: Balance of Payments, or the report of all transactions in the ‘current account’ and ‘financial account.’

Current Account Balance: A broad measure of the balance of receipts and payments concerning goods, services, and labour a country makes in international trade.

International Primary Income: Income to workers from the country in question that are paid by other countries.

Financial Account: A broad measure of the receipts and payments concerning financial assets and capital a country makes in international trade (stocks, bonds, physical capital).

Net acquisition of financial assets: Net assets that people in the country of question have bought/borrowed from foreign countries

Net incurrence of liabilities: Net assets that foreigners have bought/borrowed from the country in question.

Private Saving: Private citizen’s remaining money after taxes and expenditure: Y - T - C where Y is GDP, T is taxes, and C is consumption or expenditure

Public Saving: The government’s remaining money after government expenditures: T - G where T is tax income and G is government spending

National Savings (S): The nation’s net savings after all expenditures are accounted for: Private Saving + Public savings, or Y - C - G

Net Financial Outflow/Inflow: The net flow of capital (or investments) in or out of the country. Also represented by Net Exports or (X - M)

Capital Market Identity: A formula representing a country’s financial market: National Savings = Investment + Net financial flow, or S + (T - G) = I + (X - M)