Calculations regarding BOP (topic 2) (1 Viewer)

[luo_ge]

i'm just unsure of what to classify different components as in multi choice questions.

for example, i know exports, imports and income stem from the current account

but what components do the capital and financial account hold?

also does net current transfers go under current account, capital account or financial account?

thanks in advance

 

[BenHowe]

Ok what you need to do is just memorise this diagram http://community.boredofstudies.org...do-you-calculate-balance-payments-capture.jpg and then know the definitions for all the categories.

Net goods – difference between goods exported (+) and goods imported (-)
Net services – difference between services exported (+) and services imported (-)
Net primary income – sum of payments for factors of production, inflows or credits (+) and outflows or debits (-)
Net secondary income – one way transfers of money i.e. remittances or aid (only if the aid is not used to increase a countries capacity otherwise it is in the capital acc.)

Capital account – capital transfers such as tied aid and non-produced and non-financial assets such as intellectual property
Direct investment – purchasing more than 10% of an existing business or establishing a business
Portfolio investment – buying of land, shares and other marketable securities in existing companies, less than 10%
Financial derivatives (or sometimes referred to as futures) – a contract which allows a transaction to take place at a fixed price in the future i.e. QANTAS buying a contract which allows them to buy jet fuel at today’s prices in the future etc.
Reserve assets – assets that are controlled by central authorities for financing and regulating payment imbalances such as the RBA selling AUD in forex market to improve liquidity prior to FDI etc. These include monetary gold, special drawing rights and currency
Other investment – transactions not classified in the categories above. Examples include trade credits, loans including financial leases, currency and deposits.

Remember since in reality its difficult to keep track of the transactions occurring within an economy with a floating exchange rate such as Australia, net errors and omissions are introduced to ensure the sum of the BoP is always equal to 0.

A good way to practice this is to find the exercise in the dixon textbook that has like 35 real world examples and test your knowledge that way. There are also some mcq's that make you figure out where something is recorded in the BoP.

 

[luo_ge]

Ok what you need to do is just memorise this diagram http://community.boredofstudies.org...do-you-calculate-balance-payments-capture.jpg and then know the definitions for all the categories.

Net goods – difference between goods exported (+) and goods imported (-)
Net services – difference between services exported (+) and services imported (-)
Net primary income – sum of payments for factors of production, inflows or credits (+) and outflows or debits (-)
Net secondary income – one way transfers of money i.e. remittances or aid (only if the aid is not used to increase a countries capacity otherwise it is in the capital acc.)

Capital account – capital transfers such as tied aid and non-produced and non-financial assets such as intellectual property
Direct investment – purchasing more than 10% of an existing business or establishing a business
Portfolio investment – buying of land, shares and other marketable securities in existing companies, less than 10%
Financial derivatives (or sometimes referred to as futures) – a contract which allows a transaction to take place at a fixed price in the future i.e. QANTAS buying a contract which allows them to buy jet fuel at today’s prices in the future etc.
Reserve assets – assets that are controlled by central authorities for financing and regulating payment imbalances such as the RBA selling AUD in forex market to improve liquidity prior to FDI etc. These include monetary gold, special drawing rights and currency
Other investment – transactions not classified in the categories above. Examples include trade credits, loans including financial leases, currency and deposits.

Remember since in reality its difficult to keep track of the transactions occurring within an economy with a floating exchange rate such as Australia, net errors and omissions are introduced to ensure the sum of the BoP is always equal to 0.

A good way to practice this is to find the exercise in the dixon textbook that has like 35 real world examples and test your knowledge that way. There are also some mcq's that make you figure out where something is recorded in the BoP.

thanks