economic and financial flows in a globalised world (balance of payments…
economic and financial flows in a globalised world
balance of payments
tracks all transactions between individuals, firms or governments and the rest of the world.
the capital account
records transfer of capital to and from from abroad
eg building facilities oversees
the financial account
financial inflows and claims or liabilities concerning non residents
direct and portfolio investments along with reserve assets
the current account
payments for imports, exports
incomes and transfers of money to and from abroad
the whole account must balance as with financial statement
understand comparative positions of one country to others
what should countries do to have current account surpluses?
export more than they input, countries such as china and india are key examples of this.
why could having more surplus countries be negative for overall economy?
if more countries import more than they export it places more strain on the demand with an excess supply. with that prices drop and inflation slows or even stops. deficit countries are also given more opportunity to borrow from the surplus countries with long term effects such as a reduction in spending
foreign direct investments
investments by organisations to establish facilities for production and service provision in other countries
key difference to portfolio investments is the aim for operational control