Balance of Payments Accounts - AP Macroeconomics

It often leads to large outflows of capital, affecting the Financial Account. Panic selling creates massive capital flight.

It increases the Financial Account balance. More foreign investment coming into the country.

Financial Account. Cross-border lending represents financial flows.

A one-way transaction with no expected return, such as a gift or aid. Transfer without reciprocal economic obligation.

When outflows exceed inflows in the Current, Capital, or Financial Account. More payments leaving the country than coming in.

SDRs are international reserve assets recorded in the Financial Account. IMF-created reserve asset for international liquidity.

Every transaction is recorded as both a credit and a debit. Each transaction creates equal credit and debit entries.

It may attract foreign investment, improving the Financial Account balance. Higher rates attract foreign capital investment.

It is recorded as a current transfer in the Current Account. Aid represents unilateral transfer increasing current account.

Provides financial support and advice to stabilize BOP imbalances. International organization helping countries manage imbalances.

$\text{Current Account} + \text{Capital Account} + \text{Financial Account} = 0$. All three accounts must sum to zero by accounting identity.

A one-way transaction with no expected return, such as a gift or aid. Transfer without reciprocal economic obligation.

Investment flows such as direct investment, portfolio investment, and reserve assets. Captures all cross-border investment and lending activities.

It is recorded as a credit in the Financial Account. Higher reserves represent financial account credit.

It is recorded as a debit in the Financial Account. Domestic investment abroad reduces financial account.

It increases the Current Account balance as a credit entry. Service exports earn foreign currency as credits.

It states that devaluation improves the trade balance if the sum of price elasticities exceeds one. Condition for devaluation to improve trade balance.

It can alter reserve assets, affecting the Financial Account. Currency intervention changes official reserve holdings.

High inflation can worsen the trade balance by making exports less competitive. Rising prices reduce international competitiveness.

As a balancing item to ensure the BOP sums to zero. Statistical discrepancy to achieve required zero sum.

BOP influences exchange rates through supply and demand for currencies. Currency demand reflects international payment flows.

Money sent by expatriates to their home country, recorded in the Current Account. Workers abroad sending money home to families.

It results in a Current Account surplus. Export surplus creates positive current account balance.

The short-term worsening and long-term improvement of the trade balance after devaluation. Initial deterioration followed by eventual improvement pattern.

It can worsen the trade balance by making exports more expensive and imports cheaper. Higher currency value reduces export competitiveness.

When inflows exceed outflows in the Current, Capital, or Financial Account. More payments coming into the country than leaving.

It indicates that a country’s economic transactions with the world are in equilibrium. Total inflows equal total outflows across all accounts.

Net inflow of capital transfers and acquisition/disposal of non-produced assets. More capital transfers received than given out.

It can improve the trade balance by making exports cheaper and imports more expensive. Lower currency value boosts export competitiveness.