Balance of payments B.O.

P
It is a record of all transactions between domestic residents

and foreign residents

Inflows outflows
IAustralian
eg Exports g Imports

Credit's Payments receivedfrom foreign residents

Debits Payments made to foreign residents

Balance Credit Debts

Surplus Sum of credits Sum of debits

Deficit Sum of credits sum of debits

Current
account B.o.p Capathount

Financial
account
Current account balance
Inflows minus outflows of funds by all Teems

1 Balance of trades in
visible Trade
goods

RICEfrom exports of physical goods mass the staffing

on imports of Ikea goods

tangible
leg Furniture vehicles electronics
Clothes
 2 Balance of trades in services invisible Trade
Revered from exports of
see miss the
seeding on

imports of
Like intangible
G Tourism banking insurance education

Note Trade balance

goods services

3 Primary income netfactor income

Net income arise from investments in overseas market

such as profits interests dividends

eg HK investor starts a restaurant in the UK and

makes profits
4 Secondary income current transfer
Net unilateral transfer of funds to foreign counties

without an exchange

eg Donation foreign aid

food aid medical aid

financial account balance

1 Net foreign direct investment FDI
long term investment in foreign counties usually

undertaken by multinational corporations

invests in Japan
eg Tesla US

US debit Japan credit

 2 Portfolio investment
Financed investment such as stocks and bonds

g Hk investors buy stocks in the London stock exchange

Hk Debit Uk Credit

3 Reserve assets
Foreign currency reserve held by a central bank

to maintain the stability of a currency

fixed exchange rate system

eg Central bankintervenes
by selling foreign currency

reserve Credit de To financeaccount

Buying domestic A
Demand
cermery
4 Official borrowing
for_domesticcurrency

when a borrows
government money from another
country's government

g Sri Lanka borrows from China

Sri Lanka
credit China debit
Capital account balance
1 Capital transfers
Net monetary movement by transactions such as

investment grants and debt cancellation

f
g if the US Cancel 25 A debt owed by Uganda
 2 Transactions of non financial non produced assets

natural resources

B O.P C A F A.tt 0

Too small relative to

C A and F A so

it is sometimes negligible

us
ÉÑAdA
CA FA o l

CA F A

If current account surplus Financial account deficit

deficit surplus

Any deficit in an amount will have to be settled

by the surplus in another account

Credits A Demand for domestic currency

g g p
Debits ASupply of domesticcurrency
Fixed exchange via system HKD USD

suppose HKD is facing an upward pressure

VQE.it us HE
52

mean
a
is
I D
I
USD
Q or

1200 80

É 0135
445 105
0
8
97

93 8 5 4401
4
 12541146 285 196 w O

igci in o
log
I

1527 1393 V 954 35

49 125

1 X M
Factors affecting current account balance

Inflation rett

if infletum exports are more expensive

demand for exportsto trade balance worsens

Current account worsens

Economic growth
and services import
goods
demand for foreign
current ace worsens
worsens
I debit trade balance

Trade protection Tariff

imports debit improves trade balance
improves currentaccount
Appreciation of domestic car

I demand for foreigngoods andservices 9 imports

debit tradebalanceworsen

currentaccountworsen