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CHAP3: BALANCE OF PAYMENT - Coggle Diagram
CHAP3: BALANCE OF PAYMENT
BALANCE-OF-PAYMENTS ACCOUNTING
Credit (+): any transaction that results in a receipt from foreigners.
Debit (-): any transaction that gives rise to a payment to foreigners.
The balance of payments can be formally defined as the statistical record of a country’s international transactions over a certain period of time presented in the form of double-entry bookkeeping.
Not only international trade, that is, exports and imports, but also cross-border investments are recorded in the balance of payments.
BALANCE-OF-PAYMENTS ACCOUNTS
They are composed of the following:
i. The Current Account
The current account includes the export and import of goods and
services
ii. The Capital Account
The capital account balance includes capital transfers and acquisitions and disposals of non-produced, nonfinancial assets between U.S. residents and foreigners.
iii. The Financial Account (excluding official reserves)
The financial account balance measures the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign assets.
iv. The Official Reserves Account
The official reserve account includes transactions undertaken by the authorities to finance the overall balance and intervene in foreign exchange markets.
BoP Accounts - Example
The balance of payments accounts are those that record all transactions between the residents of a country and residents of all foreign nations.
THE BALANCE-OF-PAYMENTS IDENTITY
Under a pure fixed exchange rate regime,
BCA + BKA + BFA = - BRA
Under a pure flexible exchange rate regime,
BCA + BKA = - BFA
The Balance-of-Payments Identity (BOPI)
BCA + BKA + BFA + BRA = 0