May 8. 2017

Balance of Payments
measure of money inflows and out flows and flows between the united the united states and the rest of the world (row)
inflows are referred to as CREDITS
outflows are referred to as DEBITS
The balance of payments is dividend into 3 accounts current account
capital/ financial account 
official reserves account 
Currernt Account - balance of Trade or net Exports
-exports of goods and services
-import of goods and services
-export create a credit to the balance of payments
-importance a debit to the balance of payments
Net foreign Income
-Income earned big U.S owned foreign assets
Income paid foreign held U.S assets

Net Transfer (tend to be unilateral)
foreign aid => a debit to the current account
Example: Mexican migrants workers send to family in Mexico

Capital / Financial Account
The balance of capital ownership
INCLUDES the purchase of both real and financial assets
Direct investment by U.S firms/ individuals in a foreign country are debts to the capital account

The Factory in San Jose Costa Rica

Capital / Financial Account
Purchase of Foreign financial assets represents a debit to the capital account
Example Warren Buffet buys stock in Petra china

Purchase of domestic financial assets by foreigners represents a credit to the capital account

The united ARAB emirates sovereign wealth fund purchases a large stake

Relationship between Current and Capital Account
Remember double  entry bookkeeping
The current account and the capital account should zero each other out
That is.. it the current Account has a negative balance (deficit), then the capital account should then have a positive balance (surplus)

Official Reserves
The foreign currency holding of the United States federal Reserve system
When is a glance of payments surplus the fed accumulates foreign currency and debit the balance of payments

When is a balance of payments deficit the depletes the reserves of foreign currency and credit the balance of payments

The official Reserve Zero out the balance of Payments

Balance of Goods
Good exports- Good imports
Balance of goods and services
Good exports plush services exports - Good imports plus Services import
Current Account an own answer from this  (arrow pointing up) plus net investment

Balance of Capital Account
U.S purchases aboard plus foreign purchases in the U.S

Official Reserves
Current Account (+, - )
Plus
Capital Account ( +, -)
=
0 Theoretically