Balance of payments

Balance of payments account - record of the value of all the transactions between the residents of one country and the residents of all other countries in the world over a given period of time

Balance of payments → current account = capital account + financial account + net errors and omissions

current account - GITS

Measure of the flow of funds from trade in goods and services, as well as other income flows

  • balance of trade in goods

    • visible trade balance

    • measure of revenue from export - import of tangible goods over a period of time

  • balance of trade in services

    • invisible trade balance

    • measure of revenue from export - import of services over a period of time

  • income/net investment income

    • net monetary movement of profit, interest, and dividends moving in/out of a country over a period of time

    • result of financial investment abroad

  • current transfers

    • net transfers that aren’t connected to the trade of goods and services

    • foreign aid

    • grants

    • sending income/private gifts

capital account

  • capital transfers

    • net monetary movements gained or lost

    • transfers of goods/assets by migrants leaving the country

    • debt forgiveness

    • gift/inheritance taxes

    • death duties

  • transaction in non-produced, non-financial, or intangible assets

    • net international sales/purchases of non-produced assets

    • land and natural resources

    • copyrights, brand names

financial account - the devil wears PRADa

  • direct investment

    • measure of purchase of long-term assets

    • purchaser is aiming to gain lasting interest in a company in another economy

    • buying a property

    • buying a business/stocks or shares of a business

    • foreign direct investment

  • portfolio investment

    • measure of stock and bond purchases

    • do not lead to lasting interest in a company → not direct investment

    • treasury bills

    • government bonds

    • assets ~ borrowing and lending on an international market

  • reserve assets

    • reserves of gold and foreign currencies

    • movements in/out of this account ensure balance of payments = 0