Define balance of payments .

The balance of payments is a record of all the financial transactions that occur between a country and the rest of the world.

In the balance of payments, money flowing into an account is recorded as a credit, and money flowing out as a .

In the balance of payments, money flowing into an account is recorded as a credit, and money flowing out as a debit .

When does an account in the balance of payments show a surplus?

An account shows a surplus when more money flows into it than out of it.

Define the current account .

The current account records the net income an economy gains from international transactions in goods, services, income and transfers.

True or False? In the current account, exports of goods are referred to as invisible exports.

False. Goods are referred to as visible exports and imports, while services are the invisible ones.

What are current transfers in the current account?

Current transfers are typically payments at government level between countries, such as contributions to the World Bank.

Define the capital account .

The capital account records small capital flows between countries and is relatively inconsequential.

Give an example of a capital transfer recorded in the capital account.

Examples include debt forgiveness payments to developing countries and capital transfers by migrants as they emigrate or immigrate.

Define foreign direct investment (FDI) in the financial account.

Foreign direct investment (FDI) is a flow of money to purchase a controlling interest in a foreign firm, recorded as a credit when money flows in.

Foreign direct investment involves purchasing a controlling interest of or more in a foreign firm.

Foreign direct investment involves purchasing a controlling interest of 10% or more in a foreign firm.

What does portfolio investment in the financial account involve?

Portfolio investment involves flows of money to purchase foreign company shares and debt securities such as government and corporate bonds.

What are reserve assets in the financial account?

Reserve assets are assets controlled by the central bank for monetary policy, including gold, foreign currency and positions at the IMF.

If a country runs a current account deficit, what must be true of its capital and financial account?

It must run a surplus , as the excess spending on imports is financed by money flowing in from the sale of assets.

True or False? In theory, the current account should balance with the capital and financial account so that the balance of payments sums to zero.

True. A current account surplus is offset by a capital and financial account deficit (and vice versa), though in reality a 'net errors and omissions' figure is needed.

IBEconomicsDPSLFlashcards4. The Global Economy4.6 Balance of Payments

4.6 Balance of Payments (DP IB Economics: SL): Flashcards

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Front4.6.1 Components of the Balance of Payments
Define balance of payments.

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Cards in this collection (14)

Define balance of payments.
The balance of payments is a record of all the financial transactions that occur between a country and the rest of the world.
In the balance of payments, money flowing into an account is recorded as a credit, and money flowing out as a .
In the balance of payments, money flowing into an account is recorded as a credit, and money flowing out as a debit.
When does an account in the balance of payments show a surplus?
An account shows a surplus when more money flows into it than out of it.
Define the current account.
The current account records the net income an economy gains from international transactions in goods, services, income and transfers.
True or False?
In the current account, exports of goods are referred to as invisible exports.
False.
Goods are referred to as visible exports and imports, while services are the invisible ones.
What are current transfers in the current account?
Current transfers are typically payments at government level between countries, such as contributions to the World Bank.
Define the capital account.
The capital account records small capital flows between countries and is relatively inconsequential.
Give an example of a capital transfer recorded in the capital account.
Examples include debt forgiveness payments to developing countries and capital transfers by migrants as they emigrate or immigrate.
Define foreign direct investment (FDI) in the financial account.
Foreign direct investment (FDI) is a flow of money to purchase a controlling interest in a foreign firm, recorded as a credit when money flows in.
Foreign direct investment involves purchasing a controlling interest of or more in a foreign firm.
Foreign direct investment involves purchasing a controlling interest of 10% or more in a foreign firm.
What does portfolio investment in the financial account involve?
Portfolio investment involves flows of money to purchase foreign company shares and debt securities such as government and corporate bonds.
What are reserve assets in the financial account?
Reserve assets are assets controlled by the central bank for monetary policy, including gold, foreign currency and positions at the IMF.
If a country runs a current account deficit, what must be true of its capital and financial account?
It must run a surplus, as the excess spending on imports is financed by money flowing in from the sale of assets.
True or False?
In theory, the current account should balance with the capital and financial account so that the balance of payments sums to zero.
True.
A current account surplus is offset by a capital and financial account deficit (and vice versa), though in reality a 'net errors and omissions' figure is needed.

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