Econ Notes: Balance of Payments

-sum of all transactions between a nation's residents and residents of all foreign countries
-a balance of payment is a statement that shows all payments a nation gives and receives to and from foreign countries
-ex: exports and imports of goods and services will be shown in the balance of payments

Current Account
-record of all the imports and exports
-record of services refers to tourism, transportation, engineering, etc.
-Balance of trade: combination of imports and exports of goods and services
-BOT Deficit = Imports > Exports
-BOT Surplus = Imports < Exports

Capital Account
-purchases of real or financial assets and the corresponding flow of monetary payments that accompany them
-ex: foreign firm buys an office building or US government security. Those would be exports in return for payments of foreign currency

Official Reserves Account
-central banks of nations hold quantities of foreign currency called official reserves
-these reserves can be drawn upon to make up any net deficit between capital and current goods
-All three accounts must equal zero.
-however, there can be an imbalance between capital and current goods. Deficits are the drawing down of foreign currency. Surplus is the building up in foreign currency.

Formulas
Official Reserves = Capital Account + Current Account
Capital Account = Assets + Liabilities
Current Account = Balance of Trade + Net Investments + Net Transfers
Balance of Trade = Goods & Services Exports - Goods & Services Imports