Unit 7 Notes: 4.9.2015

Balance of payments:

Measure of money inflows and outfows between the United States and the Rest of the World.

Inflows are called Credits
Outflows are called Debits

Every transaction in the balance of payments is recorded twice in accordance with standard accounting practice.

Current Account:
Balance of trade or net exports
Export of G/S - Import of G/S
Exports create a credit to the balance of payments
Imports create debit to balance of payments

Net Foreign Income:
Income earned by US owned foreign assets - income paid to foreign held US assets

Net Transfers: (tend to be unilateral)
Foreign aid is a debit to the current account

Capital/Financial Account:
Balance of capital ownership
Includes of both real and financial assets
Direct investment in the US is a credit to the capital account
Direct investment by US firms/individuals in a foreign country are debits to the capital account
Purchase of foreign financial assets represents a debit to the capital account
Purchase of domestic financial assets by foreigners represents a credit to the capital account

Current account and capital account should zero each other out