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BoP on Current Account - Coggle Diagram
BoP on Current Account
measures the inflow and outflow of goods, services, investment incomes and transfer payments.
main components of current account are:
- Trade in goods (visible balance)
- Trade in services (invisible balance) e.g. insurance and services
- Investment incomes e.g. dividends, interest and migrants remittances from abroad
- Net transfers - e.g. international aid.
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BoP
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if a country has a deficit on the current account, it needs a surplus on the financial account.
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Evaluation:
deficit financed by long-term capital investment is more sustainable than a deficit financed by borrowing.
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some countries like US and UK run current account deficit, but have many foreign assets.
other countries like Russia and Venezuela have had BoP crisis because they were affected by a fall in price of oil which damaged export revenue very quickly.
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