Uploaded byianhorner3
PPTX, PDF6,137 views

BOP SFLS part 2 equilibrium

The document discusses the balance of payments (BOP) between two example countries, Country A and Country B. It explains that the BOP accounts for money flowing into and out of a country. Transactions between the two countries must be recorded on both of their BOPs. Various examples are provided of trade, investment, and financial flows between the countries and how they are recorded in the different BOP accounts, including the current account, capital account, and financial account. It emphasizes that the accounts must balance out to zero at the end, with credits in one account matching debits in another, according to the accounting identity of the BOP.

Embed presentation

Download to read offline
Balance of Payments Part 2
3.) Balance between Accounts Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 4.) Balance between Countries 5.) States of Equilibrium PPT 2 6.) Problems with Deficit/Surplus 7.) Disequilibrium
Capital account Financial account Financial account Off-sets Non – Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Income Current Transfers Trade in Goods Trade in Services Current account Balance of Payments This double booking accounting that is done here is an ‘Accounting Identity’
Accounting Identity会计等式 Balance of Payments Current account Capital account Financial account 0 - By definition this is supposed to be true. - Add up the amount of each side and the total should be zero. - A positive number on the current account side should be balanced by a negative number on the cap/financial accounts side.
Balance of Payments If the money is spend only in China and never leaves China, then nothing is counted in BOP. But if the money leaves or enters the country then it is counted in the BOP somehow. The point of this is to understand and follow where the money is going.
RMB can only be spent in China… Balance of Payments If it leaves China it has to come back to China in some way… All the money that leaves the country has to come back into that country someway because it can only be spent in that country!
RMB can only be spent in China… Balance of Payments If it leaves China it has to come back to China in some way… So the accounts have to balance to zero somehow! Accounting Identity会计等式 Current account Capital account Financial account 0 - All the money leaving the country should be balanced by all the money entering the country.
If America sells something to China for 2RMB then China will have to pay using Chinese RMB. Balance of Payments Even if you transferred money into the bank first the same result eventually happens, - stuff goes to one country, - money goes to the other.
China has now lost money from buying an import so it’s counted in the current account so it’s in deficit. Balance of Payments Current account Capital account Financial account China’s BOP Current account = -2
If America was to buy an export from China for the same amount then everything balances back out. Balance of Payments Current account Capital account Financial account China’s BOP Current account = 0
But if instead America buys something for only 1RMB than the NET effect is that the current account is still in deficit. Balance of Payments Current account Capital account Financial account China’s BOP Current account = - 1
So America has 2 RMB that can ONLY be spent in China… Balance of Payments Current account Capital account Financial account China’s BOP It can buy something from China to bring back t America or just gift the money back… Current Transfers Trade in Goods Trade in Services Or it can buy something that stays in China but belongs to the American buyer… Direct Investment Non – Financial assets Fixed assets Portfolio Investment
America can buy a factory or some other building in China Balance of Payments Current account Capital account Financial account China’s BOP All accounts = 0 Current account = -2 Financial account = +2 Ownership Of the factory
The RMB can only be spent in China… Balance of Payments Current account Capital account Financial account China’s BOP All accounts = 0 Current account = -2 Financial account = +2 Ownership Of the factory It has to come back to China in some way… So the accounts have to balance to zero somehow!
RMB can only be spent in China… Balance of Payments If it leaves China it has to come back to China in some way… So the accounts have to balance to zero somehow! Accounting Identity会计等式 Current account Capital account Financial account 0 - All the money leaving the country should be balanced by all the money entering the country. Remember…
Income Current Transfers Trade in Goods Trade in Services If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Current account Balance of Payments If the net total of side of the BOP is negative it is said to have a trade deficit. If the net total of side of the BOP is positive it is said to have a trade surplus.
Income Current Transfers Trade in Goods Trade in Services If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Current account Balance of Payments Trade surplus Trade deficit Amount of exports China’s current account America’s current account
Financial account Off-sets Non – Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Current account Balance of Payments If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit Notice that every thing is the opposite for this side… If you have a surplus on the current account side, (+ #) then the money has to come back in the cap/financial side (- #) so it all balances out.
Financial account Off-sets Non – Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Current account Balance of Payments If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit Trade deficit Amount of exports Trade surplus China’s cap/finacial account America’s cap/finanical account
Capital account Financial account Financial account Off-sets Non – Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Income Current Transfers Trade in Goods Trade in Services Current account If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Balance of Payments
Balance of Payments Current account Capital account Financial account If current account is < 0 Capital/Financial account is > 0 If current account is > 0 Capital/Financial account is < 0 If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus
3.) Balance between Accounts Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 4.) Balance between Countries 5.) States of Equilibrium 6.) Problems with Deficit/Surplus 7.) Disequilibrium
To start we will look at the BOP using two example countries though all these following slides… Balance of Payments Country A Country B When you trade between countries a credit or debit must be recorded in both countries BOP at the same time.
Country A Country B BOP is counting all the ways that money goes from inside and outside a country. But the people in these countries buy things form each other. Balance of Payments All the people in this country are ugly and use Dollars. All the people in this country smell funny and use RMB.
Did the money cross this line and leave the country? If it did you count it in BOP but depending on how it crosses and what you use the money for it gets counted in different accounts? Country A Country B Balance of Payments
Mr. Blue has a motorcycle for sale in his country. Mr. Red wants to buy it and bring it to his country so he pays for it. So they exchange Country A Country B Balance of Payments
This is a trade in goods Current accountCurrent account Country A Country B Balance of Payments
Mr. Blue doesn’t want this money since it is not dollars so he gives it to his bank. Nothing is counted in BOP since the money never moved between countries. Nothing crossed the line. Country A Country B Balance of Payments
The bank doesn’t want the money either since it is in the country A economy and this money can only be spent in the country B economy. So the bank may invest the money somehow… So for example the bank buys a government bond in the country B economy because it can earn interest on it. BOND Country A Country B Balance of Payments
Financial accountFinancial account BOND Country A Country B Balance of Payments
Financial accountFinancial account Current accountCurrent account BOND Country A Country B Balance of Payments
Financial accountFinancial account Current accountCurrent account Not so hard right? This is just an example, it doesn’t always have to be this way but this is a common way. BOND Country A Country B Balance of Payments
Now of course most of the time Mr. Blue will not ever accept RMB for his motorcycle. Mr. Red knows this so he first have to go to a bank to exchange money. Country A Country B Balance of Payments
He will either exchange it with a bank in country A’s country for dollars…. Country A Country B Balance of Payments
and buy the bike… Country A Country B Balance of Payments He will either exchange it with a bank in country A’s country for dollars….
Or exchange it with his own bank to get dollars… and buys the bike. Country A Country B Balance of Payments
The country B bank now needs more dollars for next time so then the banks exchange the money they used. Country A Country B Balance of Payments
Either way it’s the same thing, you count the money once it crossed the line. and something was sold in one country to another. Country A Country B Balance of Payments
Here is another example… Country A Country B Balance of Payments
Mr. Blue has a hotel for sale in his country. Mr. Red wants to buy this hotel because he thinks it will be a good investment. Ownership of the hotel Country A Country B Balance of Payments So they exchange…
Ownership of the hotel Country A Country B Balance of Payments Mr. Red in country B owns the hotel but it stays in country A.
Country A has lost an asset but has the money. Country B has gained an asset but lost the money. Financial accountFinancial account Remember we are counting where the money is flowing. Country A Country B Balance of Payments Ownership of the hotel
Let’s take that example a little further… Country A Country B Balance of Payments
Now lets say that the hotel has made a nice profit… Country A Country B Balance of Payments Ownership of the hotel
Now Mr. Red spends some of this money to buy a cheese burger in a restaurant in country A. 好吃 Country A Country B Balance of Payments Ownership of the hotel
Nothing is counted on BOP. Nothing crossed this line. Country A Country B Balance of Payments Ownership of the hotel
Now lets say that Mr. Red decides to take his profits and go back to country B. Country A Country B Balance of Payments Ownership of the hotel
This is counted in the Income Account part of the Current Account. Current accountCurrent account Country A Country B Balance of Payments Ownership of the hotel
Now let’s step back for a minute and look again at this hotel investment… Country A Country B Balance of Payments
Mr. Blue sold the hotel to a foreigner. Mr. Red owns the hotel completely even though he is from a different country. Country A Country B Balance of Payments Ownership of the hotel
Country A has lost an asset but gained some money. Country B has gained an asset from another country. Financial accountFinancial account Got it right? Country A Country B Balance of Payments Ownership of the hotel
This goes into the Direct Investment part of the Financial Account. Direct InvestmentDirect Investment Country B owns something in country A. This can be good for both sides. Country A has money invested into growing the economy of its country and country B has a good place to make some money. Country A Country B Balance of Payments Ownership of the hotel
Direct Investment is good! This is investment that will stay in the country and is invested for the long run! Direct Investment is bad! That means things in your country are owned by ugly stinky foreign devils! 重要 Country A Country B Balance of Payments Ownership of the hotel Important to both of these arguments sides.
Now change this just a little bit… Country A Country B Balance of Payments
Mr. Blue does NOT sell the hotel to Mr. Red but instead sells him a bond with a promise to pay interest. Mr. Red likes the country A economy and wants to invest in it but doesn’t want to manage a hotel. BOND with 5% interest Mr. Red gets a bond… Country A Country B Balance of Payments Ownership of the hotel
This goes into the Portfolio Investment part of the Financial Account. Portfolio InvestmentPortfolio Investment Country A Country B Balance of Payments BOND with 5% interest Ownership of the hotel
Portfolio Investment is good! Foreigners like your country and are giving you money to grow your economy! Portfolio Investment is bad! In is only short run investment. That means if the economy in your country look bad, investors get scared and leave with all their money and actually can make the economy worse off! 重要 Country A Country B Balance of Payments BOND with 5% interest Ownership of the hotel Important to both of these arguments sides.
Remember this Bond will earn interest that Mr. Blue will pay to Mr. Red. Remember how to count it if that money crosses this line… Country A Country B Balance of Payments BOND with 5% interest Ownership of the hotel
I hope that is clear. Thank you guys for your help and enjoy your motorcycle Mr. Red! Country A Country B Balance of Payments
Balance of Payments So to summarize…
Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 3.) Balance between Accounts 4.) Balance between Countries 5.) States of Equilibrium 6.) Problems with Deficit/Surplus 7.) Disequilibrium
Accounting Identity会计等式 Balance of Payments Current account Capital account Financial account 0 - By definition this is supposed to be true. - Add up the amount of each side and the total should be zero. - A positive number on the current account side should be balanced by a negative number on the cap/financial accounts side.
RMB can only be spent in China… Balance of Payments If it leaves China it has to come back to China in some way… So the accounts have to balance to zero somehow! Accounting Identity会计等式 Current account Capital account Financial account 0 - All the money leaving the country should be balanced by all the money entering the country.
Income Current Transfers Trade in Goods Trade in Services If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Current account Balance of Payments Trade surplus Trade deficit Amount of exports China’s current account America’s current account
Capital account Financial account Financial account Off-sets Non – Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Income Current Transfers Trade in Goods Trade in Services Current account If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Balance of Payments
3.) Balance between Accounts Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 4.) Balance between Countries 5.) States of Equilibrium 6.) Problems with Deficit/Surplus 7.) Disequilibrium
Balance of Payments Country A Country B When you trade between countries a credit or debit must be recorded in both countries BOP at the same time.
Did the money cross this line and leave the country? Country A Country B Balance of Payments If so it must be counted on both sides.
Financial account Off-sets Non – Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Current account Balance of Payments If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit Trade deficit Amount of exports Trade surplus China’s cap/finacial account America’s cap/finanical account
Ownership Of the hotel Direct Investment is good! This is investment that will stay in the country and is invested for the long run! Direct Investment is bad! That means things in your country are owned by ugly stinky foreign devils! 重要 Country A Country B Balance of Payments Important to both of these arguments sides.
Ownership Of the hotel BOND with 5% interest Portfolio Investment is good! Foreigners like your country and are giving you money to grow your economy! Portfolio Investment is bad! In is only short run investment. That means if the economy in your country look bad, investors get scared and leave with all their money and actually can make the economy worse off! 重要 Country A Country B Balance of Payments Important to both of these arguments sides.
One more set of examples… Balance of Payments
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account Chinese company buys wine from a French company. Debit to China’s goods part of current account Credit to France’s goods part of current account.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account Chinese resident purchases a bond from an Italy company. Debit to China’s portfolio part of financial account. Credit to Italy’s portfolio part of financial account.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account Chinese parents pay for their daughter to study at an American university. Credit to America’s services in current account. Debit to China’s services in current account. Actually in the U.S. this might even count under transfers, remember some countries do it a little different then others.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account America university gives a tuition grant to a sophomore foreign student from China. If the student is already in America no entry will appear in the balance of payments because payment is within America.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account Brazilian company imports Japanese video games, paying with euros from a Brazilian bank. Debit to the goods part of Brazil’s current account. Credit to the goods part of Japan’s current account.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account The Japanese video game seller deposits half the proceeds of its sale in a Brazilian bank. Debit to the income part of Japan’s current account. Credit to the income part of the Brazilian’s current account.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account The Japanese video game seller buys a house in Brazil. Debit to the non-financial assets part of Japan’s capital account. Credit to the non-financial assets part of the Brazilian’s capital account.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account A British person owns a factor in Singapore and brings his money with him back home to the UK. Debit to the income part of the Singapore’s current account. Credit to the income part of the UK’s current account.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account UK resident gets a job working in Singapore and is paid in Singapore dollars money assuming the money is spend in the UK. Debit to the current transfers part of the Singapore’s current account. Credit to the current transfers part of the UK’s current account.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account American resident buys drugs可卡因 from a Cuban drug lord.毒枭 Nothing is counted, this is illegal.
Balance of Payments Current account Cap/ Financial account How is this counted for both countries? Current account Cap/ Financial account German bank forgives $5000 in debt owed to it by the government of France. Debit to the financial account of the Germany. Credit to the financial account of the Germany. Forgiving the debt is saying you don’t have to pay back the money you owed, it’s like the money just disappeared.
Income Current Transfers Trade in Goods Trade in Services If (NET ) total is negative = Trade Deficit If (NET ) total is positive = Trade Surplus Financial account Financial assets Off-sets Non – Financial assets Fixed assets Capital account Official Reserves If (NET ) total is negative = Trade Surplus If (NET ) total is positive = Trade Deficit So Wait! I didn’t explain a very important thing that is apart of this! Balance of Payments Current account Capital account Financial account
Income Current Transfers Trade in Goods Trade in Services If (NET ) total is negative = Trade Deficit If (NET ) total is positive = Trade Surplus Financial account Financial assets Off-sets Non – Financial assets Fixed assets Capital account Official Reserves If (NET ) total is negative = Trade Surplus If (NET ) total is positive = Trade Deficit This part Balance of Payments Current account Capital account Financial account
Current account Income Current Transfers Trade in Goods Trade in Services If (NET ) total is negative = Trade Deficit If (NET ) total is positive = Trade Surplus Capital account Financial account Financial account Financial assets Off-sets Non – Financial assets Fixed assets Capital account Official Reserves If (NET ) total is negative = Trade Surplus If (NET ) total is positive = Trade Deficit For now I will tell you that governments hold other money from other countries all the time, either for saving or for use if people need to exchange money. This will be important when dealing with exchange rates. But I think I will get into that later… Balance of Payments
The End. Thank you!

More Related Content

PPTX
BOP SFLS accounts part 1
byianhorner3
 
PPTX
Forex SFLS part 2
byianhorner3
 
PPTX
Trading research part2
byianhorner3
 
PPTX
BOP SFLS part 3 disequilbrium
byianhorner3
 
PPTX
Asian crisis example SFLS
byianhorner3
 
PPT
Bop
bygokulvjuv
 
PPT
Bop
byShivali Kapoor
 
PPTX
Balance of Payments explained
bytheglobaleconomy
 
BOP SFLS accounts part 1
byianhorner3
 
Forex SFLS part 2
byianhorner3
 
Trading research part2
byianhorner3
 
BOP SFLS part 3 disequilbrium
byianhorner3
 
Asian crisis example SFLS
byianhorner3
 
Bop
bygokulvjuv
 
Bop
byShivali Kapoor
 
Balance of Payments explained
bytheglobaleconomy
 

What's hot

PPTX
Balance of payments
byVINAY KENKERE
 
PPTX
The Relation between Balance of Payment and Foreign Exchange Rate
bymohamedosman370
 
DOC
Chapter 2
byavibd07
 
PPTX
4.6 International Economics Exchange Rates
byAndrew McCarthy
 
PPT
4.5 International Economics Balance Of Payments
byAndrew McCarthy
 
PPTX
financial institution and markets
byAcharya Bangalore Business School
 
PPTX
Balance of payments and Exchange rate
byshweta_singh_xoxo
 
PDF
Int Econ BoP
byJulio Huato
 
PPT
MACROECONOMICS-CH18
bykkjjkevin03
 
PPT
Book keeping & balance of payment
byPankaj Kumar
 
DOCX
Balance of payments
byJubayer Alam Shoikat
 
PPT
BALANCE OF PAYMENT
byAmith Kumar
 
PPT
Dbs1034 biz trx week 9 balancing off accounts
byStephen Ong
 
PPTX
The behaviour of interest rates
byRhazes Zy
 
PPTX
international business trade
byNitin Patil
 
PPTX
Net Exports (X-M)
byHugo OGrady
 
PDF
Balance of payments
byAsusena Tártaros
 
PPT
The Foreign Exchange Market
byRobin Kapoor
 
Balance of payments
byVINAY KENKERE
 
The Relation between Balance of Payment and Foreign Exchange Rate
bymohamedosman370
 
Chapter 2
byavibd07
 
4.6 International Economics Exchange Rates
byAndrew McCarthy
 
4.5 International Economics Balance Of Payments
byAndrew McCarthy
 
financial institution and markets
byAcharya Bangalore Business School
 
Balance of payments and Exchange rate
byshweta_singh_xoxo
 
Int Econ BoP
byJulio Huato
 
MACROECONOMICS-CH18
bykkjjkevin03
 
Book keeping & balance of payment
byPankaj Kumar
 
Balance of payments
byJubayer Alam Shoikat
 
BALANCE OF PAYMENT
byAmith Kumar
 
Dbs1034 biz trx week 9 balancing off accounts
byStephen Ong
 
The behaviour of interest rates
byRhazes Zy
 
international business trade
byNitin Patil
 
Net Exports (X-M)
byHugo OGrady
 
Balance of payments
byAsusena Tártaros
 
The Foreign Exchange Market
byRobin Kapoor
 

Viewers also liked

PPTX
Money functions SFLS
byianhorner3
 
PPTX
Public Goods and Issues SFLS
byianhorner3
 
PPTX
First Definitions SFLS
byianhorner3
 
PPTX
Externalities SFLS part1
byianhorner3
 
PPTX
Basic Econ Ideas
byianhorner3
 
PPTX
Inflation SFLS types
byianhorner3
 
PPTX
Taxes Intro part 2 SFLS
byianhorner3
 
PPTX
Basic Models SFLS
byianhorner3
 
PPTX
Elasticity SFLS
byianhorner3
 
PPTX
Demand SFLS
byianhorner3
 
PPTX
Trade diversion SFLS
byianhorner3
 
PPTX
Trade Integration SFLS
byianhorner3
 
PPTX
SFLS Price mechanism
byianhorner3
 
PPTX
International Trade SFLS part2
byianhorner3
 
PPTX
macrostart SFLS
byianhorner3
 
PPTX
Inflation SFLS CPI
byianhorner3
 
PPTX
Externalities SFLS part2
byianhorner3
 
PPTX
Classifying Goods SFLS
byianhorner3
 
PPTX
Forex SFLS part 3
byianhorner3
 
PPTX
AD SFLS
byianhorner3
 
Money functions SFLS
byianhorner3
 
Public Goods and Issues SFLS
byianhorner3
 
First Definitions SFLS
byianhorner3
 
Externalities SFLS part1
byianhorner3
 
Basic Econ Ideas
byianhorner3
 
Inflation SFLS types
byianhorner3
 
Taxes Intro part 2 SFLS
byianhorner3
 
Basic Models SFLS
byianhorner3
 
Elasticity SFLS
byianhorner3
 
Demand SFLS
byianhorner3
 
Trade diversion SFLS
byianhorner3
 
Trade Integration SFLS
byianhorner3
 
SFLS Price mechanism
byianhorner3
 
International Trade SFLS part2
byianhorner3
 
macrostart SFLS
byianhorner3
 
Inflation SFLS CPI
byianhorner3
 
Externalities SFLS part2
byianhorner3
 
Classifying Goods SFLS
byianhorner3
 
Forex SFLS part 3
byianhorner3
 
AD SFLS
byianhorner3
 

Similar to BOP SFLS part 2 equilibrium

PPT
Balance of Payment. New documents. Nicew
byMdManikMia14
 
PPTX
The balance of payments
bySusan Achia
 
PDF
Balance Of Payment.pdf11122222222222222222122222222222
bynischayagarwal008
 
PPTX
BALANCE OF PAYMENT
bySimranSeth7
 
PPT
foreign trade
bykarun11
 
PPT
Balance of payments[1].ppt
byRichaGoel44
 
PPT
Unit 5 Balance of Payments
byRitvik Tolumbia
 
PPTX
The Balance of Payments - How it's measured
byHugo OGrady
 
PPTX
Bop
byAnu Mathew
 
PPT
lecture010000.ppt
bysukses6
 
PPTX
BALANCE%20OF%20PAYMENTS.jajakosnsksksjajsjjsks
bygencalambro
 
PPTX
Balance Of Payments
byVidhyaVishwanathan2
 
PPTX
Macro economics Class 12th Balance of Payments .pptx
bypawarmanyata8
 
PPTX
Balance of payment
byHemant Jain
 
PPTX
BALANCE OF PAYMENTS
bySagarDuttPhuloria
 
PPT
Balance of payment
byKaran Desai
 
DOCX
Project of eop (balance of payment)
byAroosh Sheikh
 
PPT
Bop
bysinghdharmendra
 
DOCX
Trends and challenges of BOP of India
byRutuja Chudnaik
 
PPTX
Balance of payments
bySakshi Garg
 
Balance of Payment. New documents. Nicew
byMdManikMia14
 
The balance of payments
bySusan Achia
 
Balance Of Payment.pdf11122222222222222222122222222222
bynischayagarwal008
 
BALANCE OF PAYMENT
bySimranSeth7
 
foreign trade
bykarun11
 
Balance of payments[1].ppt
byRichaGoel44
 
Unit 5 Balance of Payments
byRitvik Tolumbia
 
The Balance of Payments - How it's measured
byHugo OGrady
 
Bop
byAnu Mathew
 
lecture010000.ppt
bysukses6
 
BALANCE%20OF%20PAYMENTS.jajakosnsksksjajsjjsks
bygencalambro
 
Balance Of Payments
byVidhyaVishwanathan2
 
Macro economics Class 12th Balance of Payments .pptx
bypawarmanyata8
 
Balance of payment
byHemant Jain
 
BALANCE OF PAYMENTS
bySagarDuttPhuloria
 
Balance of payment
byKaran Desai
 
Project of eop (balance of payment)
byAroosh Sheikh
 
Bop
bysinghdharmendra
 
Trends and challenges of BOP of India
byRutuja Chudnaik
 
Balance of payments
bySakshi Garg
 

More from ianhorner3

PPTX
Supply-side Policy SFLS
byianhorner3
 
PPTX
Monetary Policy SFLS
byianhorner3
 
PPTX
The Multiplier Effect SFLS
byianhorner3
 
PPTX
Fiscal policy SFLS
byianhorner3
 
PPTX
Unemployment SFLS
byianhorner3
 
PPTX
SRAS SFLS
byianhorner3
 
PPTX
Inflation SFLS problems
byianhorner3
 
PPTX
LRAS SFLS
byianhorner3
 
PPTX
Trading Research part 3
byianhorner3
 
PPTX
Forex SFLS part 1
byianhorner3
 
PPTX
InternationalTradeResearch
byianhorner3
 
PPTX
Fish gameresults2017
byianhorner3
 
PPTX
International Trade SFLS part1
byianhorner3
 
PPTX
International Trade part 2 SFLS
byianhorner3
 
Supply-side Policy SFLS
byianhorner3
 
Monetary Policy SFLS
byianhorner3
 
The Multiplier Effect SFLS
byianhorner3
 
Fiscal policy SFLS
byianhorner3
 
Unemployment SFLS
byianhorner3
 
SRAS SFLS
byianhorner3
 
Inflation SFLS problems
byianhorner3
 
LRAS SFLS
byianhorner3
 
Trading Research part 3
byianhorner3
 
Forex SFLS part 1
byianhorner3
 
InternationalTradeResearch
byianhorner3
 
Fish gameresults2017
byianhorner3
 
International Trade SFLS part1
byianhorner3
 
International Trade part 2 SFLS
byianhorner3
 

Recently uploaded

PPTX
COMMUNICATION ITS PROCESS ELEMENTS & BARRIER .pptx
byPoojaSen20
 
PPTX
That long silence - Novel by Shashi Deshapande
bysanjanavaghela65
 
PPTX
The night at deoli - Ruskin bond's story of first love
byrajibhammar4
 
PDF
Beak Modifications by Dr. Ramzan Virani pptx.pdf
byDr. Ramzan Virani
 
PPTX
" Jaya : Silence as Resistance " - That long silence
bydharabhandari35
 
PPTX
Day 2 ppt english.powerpoint presentation ppt
byJeahMaeMedez
 
PPT
West Hatch High School - GCSE History Option
byWestHatch
 
PDF
Bishan_Singh_Presentation - Toba tek Singh
bygopalsinhchauhan9313
 
PPTX
Exploring Higher education and its pathways
byEVAMAEBONGHANOY5
 
PPTX
HABIT. Cognitive process. I Semester Shilpa Hotakar pptx
bySHILPA HOTAKAR
 
PPTX
28 January 2026 Rebecca Frankum Are high-stakes exams and assessments still r...
byEduSkills OECD
 
PPTX
West Hatch High School - GCSE Art Presentation
byWestHatch
 
PPTX
YSPH VMOC Special Report - Measles - The Americas 1-25-2026
byYale School of Public Health - The Virtual Medical Operations Center (VMOC)
 
PPTX
Mohan - "A man of silence and authority"
bynidhibachauhan46
 
PPTX
"Aristotle : Father Of Western Philosophy"
bymitalbarathod28
 
PPTX
West Hatch High School - GCSE Media Studies
byWestHatch
 
PPTX
Powerpoint for testing in embed test with Sway
byjeanpierrefort3
 
PDF
Lamarckism: Theory of Evolution, Principles, Examples, Objections and Neo-Lam...
byIPGDCWA,NAMPALLY
 
PPTX
Definition of communication skills and it's process.
bypurvrajsinhsarvaiya0
 
PPTX
MENTAL STATUS EXAMINATION Part-1.Shilpa hotakar.pptx
bySHILPA HOTAKAR
 
COMMUNICATION ITS PROCESS ELEMENTS & BARRIER .pptx
byPoojaSen20
 
That long silence - Novel by Shashi Deshapande
bysanjanavaghela65
 
The night at deoli - Ruskin bond's story of first love
byrajibhammar4
 
Beak Modifications by Dr. Ramzan Virani pptx.pdf
byDr. Ramzan Virani
 
" Jaya : Silence as Resistance " - That long silence
bydharabhandari35
 
Day 2 ppt english.powerpoint presentation ppt
byJeahMaeMedez
 
West Hatch High School - GCSE History Option
byWestHatch
 
Bishan_Singh_Presentation - Toba tek Singh
bygopalsinhchauhan9313
 
Exploring Higher education and its pathways
byEVAMAEBONGHANOY5
 
HABIT. Cognitive process. I Semester Shilpa Hotakar pptx
bySHILPA HOTAKAR
 
28 January 2026 Rebecca Frankum Are high-stakes exams and assessments still r...
byEduSkills OECD
 
West Hatch High School - GCSE Art Presentation
byWestHatch
 
YSPH VMOC Special Report - Measles - The Americas 1-25-2026
byYale School of Public Health - The Virtual Medical Operations Center (VMOC)
 
Mohan - "A man of silence and authority"
bynidhibachauhan46
 
"Aristotle : Father Of Western Philosophy"
bymitalbarathod28
 
West Hatch High School - GCSE Media Studies
byWestHatch
 
Powerpoint for testing in embed test with Sway
byjeanpierrefort3
 
Lamarckism: Theory of Evolution, Principles, Examples, Objections and Neo-Lam...
byIPGDCWA,NAMPALLY
 
Definition of communication skills and it's process.
bypurvrajsinhsarvaiya0
 
MENTAL STATUS EXAMINATION Part-1.Shilpa hotakar.pptx
bySHILPA HOTAKAR
 

BOP SFLS part 2 equilibrium

  • 1.
  • 2.
    3.) Balance betweenAccounts Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 4.) Balance between Countries 5.) States of Equilibrium PPT 2 6.) Problems with Deficit/Surplus 7.) Disequilibrium
  • 3.
    Capital account Financial account Financialaccount Off-sets Non – Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Income Current Transfers Trade in Goods Trade in Services Current account Balance of Payments This double booking accounting that is done here is an ‘Accounting Identity’
  • 4.
    Accounting Identity会计等式 Balance ofPayments Current account Capital account Financial account 0 - By definition this is supposed to be true. - Add up the amount of each side and the total should be zero. - A positive number on the current account side should be balanced by a negative number on the cap/financial accounts side.
  • 5.
    Balance of Payments Ifthe money is spend only in China and never leaves China, then nothing is counted in BOP. But if the money leaves or enters the country then it is counted in the BOP somehow. The point of this is to understand and follow where the money is going.
  • 6.
    RMB can onlybe spent in China… Balance of Payments If it leaves China it has to come back to China in some way… All the money that leaves the country has to come back into that country someway because it can only be spent in that country!
  • 7.
    RMB can onlybe spent in China… Balance of Payments If it leaves China it has to come back to China in some way… So the accounts have to balance to zero somehow! Accounting Identity会计等式 Current account Capital account Financial account 0 - All the money leaving the country should be balanced by all the money entering the country.
  • 8.
    If America sellssomething to China for 2RMB then China will have to pay using Chinese RMB. Balance of Payments Even if you transferred money into the bank first the same result eventually happens, - stuff goes to one country, - money goes to the other.
  • 9.
    China has nowlost money from buying an import so it’s counted in the current account so it’s in deficit. Balance of Payments Current account Capital account Financial account China’s BOP Current account = -2
  • 10.
    If America wasto buy an export from China for the same amount then everything balances back out. Balance of Payments Current account Capital account Financial account China’s BOP Current account = 0
  • 11.
    But if insteadAmerica buys something for only 1RMB than the NET effect is that the current account is still in deficit. Balance of Payments Current account Capital account Financial account China’s BOP Current account = - 1
  • 12.
    So America has2 RMB that can ONLY be spent in China… Balance of Payments Current account Capital account Financial account China’s BOP It can buy something from China to bring back t America or just gift the money back… Current Transfers Trade in Goods Trade in Services Or it can buy something that stays in China but belongs to the American buyer… Direct Investment Non – Financial assets Fixed assets Portfolio Investment
  • 13.
    America can buya factory or some other building in China Balance of Payments Current account Capital account Financial account China’s BOP All accounts = 0 Current account = -2 Financial account = +2 Ownership Of the factory
  • 14.
    The RMB canonly be spent in China… Balance of Payments Current account Capital account Financial account China’s BOP All accounts = 0 Current account = -2 Financial account = +2 Ownership Of the factory It has to come back to China in some way… So the accounts have to balance to zero somehow!
  • 15.
    RMB can onlybe spent in China… Balance of Payments If it leaves China it has to come back to China in some way… So the accounts have to balance to zero somehow! Accounting Identity会计等式 Current account Capital account Financial account 0 - All the money leaving the country should be balanced by all the money entering the country. Remember…
  • 16.
    Income Current Transfers Trade inGoods Trade in Services If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Current account Balance of Payments If the net total of side of the BOP is negative it is said to have a trade deficit. If the net total of side of the BOP is positive it is said to have a trade surplus.
  • 17.
    Income Current Transfers Trade inGoods Trade in Services If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Current account Balance of Payments Trade surplus Trade deficit Amount of exports China’s current account America’s current account
  • 18.
    Financial account Off-sets Non –Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Current account Balance of Payments If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit Notice that every thing is the opposite for this side… If you have a surplus on the current account side, (+ #) then the money has to come back in the cap/financial side (- #) so it all balances out.
  • 19.
    Financial account Off-sets Non –Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Current account Balance of Payments If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit Trade deficit Amount of exports Trade surplus China’s cap/finacial account America’s cap/finanical account
  • 20.
    Capital account Financial account Financialaccount Off-sets Non – Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Income Current Transfers Trade in Goods Trade in Services Current account If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Balance of Payments
  • 21.
    Balance of Payments Currentaccount Capital account Financial account If current account is < 0 Capital/Financial account is > 0 If current account is > 0 Capital/Financial account is < 0 If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus
  • 22.
    3.) Balance betweenAccounts Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 4.) Balance between Countries 5.) States of Equilibrium 6.) Problems with Deficit/Surplus 7.) Disequilibrium
  • 23.
    To start wewill look at the BOP using two example countries though all these following slides… Balance of Payments Country A Country B When you trade between countries a credit or debit must be recorded in both countries BOP at the same time.
  • 24.
    Country A CountryB BOP is counting all the ways that money goes from inside and outside a country. But the people in these countries buy things form each other. Balance of Payments All the people in this country are ugly and use Dollars. All the people in this country smell funny and use RMB.
  • 25.
    Did the moneycross this line and leave the country? If it did you count it in BOP but depending on how it crosses and what you use the money for it gets counted in different accounts? Country A Country B Balance of Payments
  • 26.
    Mr. Blue hasa motorcycle for sale in his country. Mr. Red wants to buy it and bring it to his country so he pays for it. So they exchange Country A Country B Balance of Payments
  • 27.
    This is atrade in goods Current accountCurrent account Country A Country B Balance of Payments
  • 28.
    Mr. Blue doesn’twant this money since it is not dollars so he gives it to his bank. Nothing is counted in BOP since the money never moved between countries. Nothing crossed the line. Country A Country B Balance of Payments
  • 29.
    The bank doesn’twant the money either since it is in the country A economy and this money can only be spent in the country B economy. So the bank may invest the money somehow… So for example the bank buys a government bond in the country B economy because it can earn interest on it. BOND Country A Country B Balance of Payments
  • 30.
    Financial accountFinancial account BOND CountryA Country B Balance of Payments
  • 31.
    Financial accountFinancial account CurrentaccountCurrent account BOND Country A Country B Balance of Payments
  • 32.
    Financial accountFinancial account CurrentaccountCurrent account Not so hard right? This is just an example, it doesn’t always have to be this way but this is a common way. BOND Country A Country B Balance of Payments
  • 33.
    Now of coursemost of the time Mr. Blue will not ever accept RMB for his motorcycle. Mr. Red knows this so he first have to go to a bank to exchange money. Country A Country B Balance of Payments
  • 34.
    He will eitherexchange it with a bank in country A’s country for dollars…. Country A Country B Balance of Payments
  • 35.
    and buy thebike… Country A Country B Balance of Payments He will either exchange it with a bank in country A’s country for dollars….
  • 36.
    Or exchange it withhis own bank to get dollars… and buys the bike. Country A Country B Balance of Payments
  • 37.
    The country Bbank now needs more dollars for next time so then the banks exchange the money they used. Country A Country B Balance of Payments
  • 38.
    Either way it’sthe same thing, you count the money once it crossed the line. and something was sold in one country to another. Country A Country B Balance of Payments
  • 39.
    Here is anotherexample… Country A Country B Balance of Payments
  • 40.
    Mr. Blue hasa hotel for sale in his country. Mr. Red wants to buy this hotel because he thinks it will be a good investment. Ownership of the hotel Country A Country B Balance of Payments So they exchange…
  • 41.
    Ownership of the hotel CountryA Country B Balance of Payments Mr. Red in country B owns the hotel but it stays in country A.
  • 42.
    Country A haslost an asset but has the money. Country B has gained an asset but lost the money. Financial accountFinancial account Remember we are counting where the money is flowing. Country A Country B Balance of Payments Ownership of the hotel
  • 43.
    Let’s take that examplea little further… Country A Country B Balance of Payments
  • 44.
    Now lets saythat the hotel has made a nice profit… Country A Country B Balance of Payments Ownership of the hotel
  • 45.
    Now Mr. Redspends some of this money to buy a cheese burger in a restaurant in country A. 好吃 Country A Country B Balance of Payments Ownership of the hotel
  • 46.
    Nothing is counted onBOP. Nothing crossed this line. Country A Country B Balance of Payments Ownership of the hotel
  • 47.
    Now lets saythat Mr. Red decides to take his profits and go back to country B. Country A Country B Balance of Payments Ownership of the hotel
  • 48.
    This is countedin the Income Account part of the Current Account. Current accountCurrent account Country A Country B Balance of Payments Ownership of the hotel
  • 49.
    Now let’s stepback for a minute and look again at this hotel investment… Country A Country B Balance of Payments
  • 50.
    Mr. Blue soldthe hotel to a foreigner. Mr. Red owns the hotel completely even though he is from a different country. Country A Country B Balance of Payments Ownership of the hotel
  • 51.
    Country A haslost an asset but gained some money. Country B has gained an asset from another country. Financial accountFinancial account Got it right? Country A Country B Balance of Payments Ownership of the hotel
  • 52.
    This goes intothe Direct Investment part of the Financial Account. Direct InvestmentDirect Investment Country B owns something in country A. This can be good for both sides. Country A has money invested into growing the economy of its country and country B has a good place to make some money. Country A Country B Balance of Payments Ownership of the hotel
  • 53.
    Direct Investment isgood! This is investment that will stay in the country and is invested for the long run! Direct Investment is bad! That means things in your country are owned by ugly stinky foreign devils! 重要 Country A Country B Balance of Payments Ownership of the hotel Important to both of these arguments sides.
  • 54.
    Now change thisjust a little bit… Country A Country B Balance of Payments
  • 55.
    Mr. Blue doesNOT sell the hotel to Mr. Red but instead sells him a bond with a promise to pay interest. Mr. Red likes the country A economy and wants to invest in it but doesn’t want to manage a hotel. BOND with 5% interest Mr. Red gets a bond… Country A Country B Balance of Payments Ownership of the hotel
  • 56.
    This goes intothe Portfolio Investment part of the Financial Account. Portfolio InvestmentPortfolio Investment Country A Country B Balance of Payments BOND with 5% interest Ownership of the hotel
  • 57.
    Portfolio Investment isgood! Foreigners like your country and are giving you money to grow your economy! Portfolio Investment is bad! In is only short run investment. That means if the economy in your country look bad, investors get scared and leave with all their money and actually can make the economy worse off! 重要 Country A Country B Balance of Payments BOND with 5% interest Ownership of the hotel Important to both of these arguments sides.
  • 58.
    Remember this Bond willearn interest that Mr. Blue will pay to Mr. Red. Remember how to count it if that money crosses this line… Country A Country B Balance of Payments BOND with 5% interest Ownership of the hotel
  • 59.
    I hope thatis clear. Thank you guys for your help and enjoy your motorcycle Mr. Red! Country A Country B Balance of Payments
  • 60.
    Balance of Payments Soto summarize…
  • 61.
    Balance of Payments: 1.)Some Vocabulary 2.) The Accounts 3.) Balance between Accounts 4.) Balance between Countries 5.) States of Equilibrium 6.) Problems with Deficit/Surplus 7.) Disequilibrium
  • 62.
    Accounting Identity会计等式 Balance ofPayments Current account Capital account Financial account 0 - By definition this is supposed to be true. - Add up the amount of each side and the total should be zero. - A positive number on the current account side should be balanced by a negative number on the cap/financial accounts side.
  • 63.
    RMB can onlybe spent in China… Balance of Payments If it leaves China it has to come back to China in some way… So the accounts have to balance to zero somehow! Accounting Identity会计等式 Current account Capital account Financial account 0 - All the money leaving the country should be balanced by all the money entering the country.
  • 64.
    Income Current Transfers Trade inGoods Trade in Services If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Current account Balance of Payments Trade surplus Trade deficit Amount of exports China’s current account America’s current account
  • 65.
    Capital account Financial account Financialaccount Off-sets Non – Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Income Current Transfers Trade in Goods Trade in Services Current account If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit If NET total is negative = Trade Deficit If NET total is positive = Trade Surplus Balance of Payments
  • 66.
    3.) Balance betweenAccounts Balance of Payments: 1.) Some Vocabulary 2.) The Accounts 4.) Balance between Countries 5.) States of Equilibrium 6.) Problems with Deficit/Surplus 7.) Disequilibrium
  • 67.
    Balance of Payments CountryA Country B When you trade between countries a credit or debit must be recorded in both countries BOP at the same time.
  • 68.
    Did the moneycross this line and leave the country? Country A Country B Balance of Payments If so it must be counted on both sides.
  • 69.
    Financial account Off-sets Non –Financial assets Fixed assets Capital account Official Reserves Portfolio Investment Direct Investment Current account Balance of Payments If NET total is negative = Trade Surplus If NET total is positive = Trade Deficit Trade deficit Amount of exports Trade surplus China’s cap/finacial account America’s cap/finanical account
  • 70.
    Ownership Of the hotel DirectInvestment is good! This is investment that will stay in the country and is invested for the long run! Direct Investment is bad! That means things in your country are owned by ugly stinky foreign devils! 重要 Country A Country B Balance of Payments Important to both of these arguments sides.
  • 71.
    Ownership Of the hotel BOND with5% interest Portfolio Investment is good! Foreigners like your country and are giving you money to grow your economy! Portfolio Investment is bad! In is only short run investment. That means if the economy in your country look bad, investors get scared and leave with all their money and actually can make the economy worse off! 重要 Country A Country B Balance of Payments Important to both of these arguments sides.
  • 72.
    One more setof examples… Balance of Payments
  • 73.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account Chinese company buys wine from a French company. Debit to China’s goods part of current account Credit to France’s goods part of current account.
  • 74.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account Chinese resident purchases a bond from an Italy company. Debit to China’s portfolio part of financial account. Credit to Italy’s portfolio part of financial account.
  • 75.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account Chinese parents pay for their daughter to study at an American university. Credit to America’s services in current account. Debit to China’s services in current account. Actually in the U.S. this might even count under transfers, remember some countries do it a little different then others.
  • 76.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account America university gives a tuition grant to a sophomore foreign student from China. If the student is already in America no entry will appear in the balance of payments because payment is within America.
  • 77.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account Brazilian company imports Japanese video games, paying with euros from a Brazilian bank. Debit to the goods part of Brazil’s current account. Credit to the goods part of Japan’s current account.
  • 78.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account The Japanese video game seller deposits half the proceeds of its sale in a Brazilian bank. Debit to the income part of Japan’s current account. Credit to the income part of the Brazilian’s current account.
  • 79.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account The Japanese video game seller buys a house in Brazil. Debit to the non-financial assets part of Japan’s capital account. Credit to the non-financial assets part of the Brazilian’s capital account.
  • 80.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account A British person owns a factor in Singapore and brings his money with him back home to the UK. Debit to the income part of the Singapore’s current account. Credit to the income part of the UK’s current account.
  • 81.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account UK resident gets a job working in Singapore and is paid in Singapore dollars money assuming the money is spend in the UK. Debit to the current transfers part of the Singapore’s current account. Credit to the current transfers part of the UK’s current account.
  • 82.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account American resident buys drugs可卡因 from a Cuban drug lord.毒枭 Nothing is counted, this is illegal.
  • 83.
    Balance of Payments Current account Cap/Financial account How is this counted for both countries? Current account Cap/ Financial account German bank forgives $5000 in debt owed to it by the government of France. Debit to the financial account of the Germany. Credit to the financial account of the Germany. Forgiving the debt is saying you don’t have to pay back the money you owed, it’s like the money just disappeared.
  • 84.
    Income Current Transfers Trade inGoods Trade in Services If (NET ) total is negative = Trade Deficit If (NET ) total is positive = Trade Surplus Financial account Financial assets Off-sets Non – Financial assets Fixed assets Capital account Official Reserves If (NET ) total is negative = Trade Surplus If (NET ) total is positive = Trade Deficit So Wait! I didn’t explain a very important thing that is apart of this! Balance of Payments Current account Capital account Financial account
  • 85.
    Income Current Transfers Trade inGoods Trade in Services If (NET ) total is negative = Trade Deficit If (NET ) total is positive = Trade Surplus Financial account Financial assets Off-sets Non – Financial assets Fixed assets Capital account Official Reserves If (NET ) total is negative = Trade Surplus If (NET ) total is positive = Trade Deficit This part Balance of Payments Current account Capital account Financial account
  • 86.
    Current account Income Current Transfers Tradein Goods Trade in Services If (NET ) total is negative = Trade Deficit If (NET ) total is positive = Trade Surplus Capital account Financial account Financial account Financial assets Off-sets Non – Financial assets Fixed assets Capital account Official Reserves If (NET ) total is negative = Trade Surplus If (NET ) total is positive = Trade Deficit For now I will tell you that governments hold other money from other countries all the time, either for saving or for use if people need to exchange money. This will be important when dealing with exchange rates. But I think I will get into that later… Balance of Payments
  • 87.

Editor's Notes