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Economic and financial flows in a globalised world (Balance of Payments…
Economic and financial flows in a globalised world
Balance of Payments
Current account
Payments for imports / exports for trade in goods / services
Incomes and transfers of money from abroad by individuals
Large defecit = borrowing money to purchase goods produced outside the country
Capital Account
Transfers of capital to and from abroad
ie - foreign companies building factories overseas
Financial account
Financial inflows
Claims or liabilities to non-residents
direct investments
portfolio investments
reserve assets
financial capital held by monetary authorities
Global Imbalances
Resolved
Natural market forces
Government action
influencing exchange rate
stimulating export industries
Surplusses
keeping currencies artificially low
rise in oil prices
Middle East and China (historically)
Defecits
Countries have to borrow or sell assets
Reduced spending
FDI's
Foreign Direct Investments
Companies that Invest overseas to establish plants / offices
to produce / sell products internationally
Portfolio Investments
Financial assets are brought / sold in other countries