The current account continuation

This is net income earned from past investment abroad plus repatriated incomes earned working abroad.

Deposits in foreign banks receiving payments of interest gained

Business set up overseas by a UK company earning profits for the UK parent company.

Shares bought in foreign firms will bring dividend payments to the UL shareholder (buying and selling of shares is not generated incomes so does not appear of the current account.

Salaries paid to UK residents working abroad.

Secondary income (transfers)

Transfers are the movements of money between countries which are not paying for goods or services and are not the result of investment.

These redistributive international transfer payments include:

  • net payments to international intuitions such as the IMF

  • net foreign aid

  • Personal transfers from one family member to another abroad.

Causes of current deficit

A current account deficit is when the sum of net trade, net primary income, and net secondary income is negative. We have seen that UK has a current account deficit that is predicted to last many years. To the right is a list of possible causes for a current deficit.

Lists of possible causes:

  • INFLATION

  • Low investment

  • Strong exchange rate-

Reasons for current account deficits.

  1. An overvalued exchange rate Exchange rates and the (foreign price of exports move in the same direction.

Strong Pound Import Cheaper Exports Dearer

Write in word how an overvalued exchange rate may cause a current account deficit.

Imports are lower than exports.