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Balance of Payment - Coggle Diagram
Balance of Payment
Financial account
Direct investment (FDI): investments by foreign firms that sets up productive facilities in a foreign country or owns at least 10% of controlling interest in an existing foreign firm
Portfolio investment: investments in financial assets, such as stocks, bonds and shares to gain financial returns in the form of interest and dividends
Official borrowing: international borrowing by a government often to cover current account deficit (appears as a credit - inflow of funds)
Reserve assets: central bank holdings of foreign currencies or precious metals (as a result of international trade) that can be used to influence exchange rate
Current account
Visible account: Balance of trade in goods
- exports of goods - imports of goods over a period of time
Invisible account
Balance of trade in services
- exports of services - imports of services
Net income from abroad
- income received from abroad - income paid to abroad
Net current transfers: payments from residents to non-residents that does not give rise to any output of economic value (they don't receive anything of economic value in return) and that directly affects disposable income
Capital account
Financial and non-financial assets for items like debt forgiveness, investment and non-life insurance claims
Non-produced and non-financial assets that consist mainly of international purchases or sales of FOPs that have not been produced and intangible assets (intellectual property rights)
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Errors and omissions
There is always an error in calculations as it is difficult to record every single transaction (this makes up for the statistical discrepancy)
- sum of all credit items must equal to sum of all debit items
BOP: value of all transactions that a country has with the world over a period of time
Credit item: any transaction that leads to a receipt of foreign exchange from foreigners
Debit item: any transaction that leads to payments to foreigners