Unit 7 Balance of payments

Image result for balance of payments*The balance of payments: measures of money inflows and outflows between the US and the rest of the world.
-is divided into 3 accounts
  1. Current account
  2. Capital/financial account
  3. Official reserves                                                                                                                                                                                      
Inflows: known as credits, outflows are known as debits.

Current account: balance/net exports
-Exports-imports
-Exports is credit/assets
-Import is debit/liability
-Exports is credit asserts
-Net foreign income/foreign investments
-Income earned by U.S. owned foreign assets and income to foreign held US assets.
-Net transfers/foreign aid

*Capital/Financial Account
-Real+financial Assets (real estates +stocks)
-Includes purchase of real and annual assets
-Direct investment in US is a credit to the capital account ex.Toyota factory in Florida
-Direct investment by US firms/individuals in a foreign country or debits to the capital account ex: Dell in Costa Rica
-Purchase of foreign financial assets represnts a debit to a capital account. ex. Bill Gates buys stock in Petro China
-Purchase of domestic financial assets by foreigners represents a credit to the capital account. ex. Venezuela purchases a large stake Walmart
-Current and capital account should zero each other out.

Balance on Goods and services: goods exports + service exports - goods imports + service imports

*Official Reserves
-Foreign currency holdings of the US federal bank balance of payments.
-Official reserves should zero out the balance of payments.
Formula for balance of trade: Good exports+Good imports
Image result for capital account

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