2.1.4 Balance of payments

• The balance of payments (BOP) records economic transactions between residents of a country and the rest of the world
• The balance of payments (BOP) is divided into two main components: the current account and the capital and financial account
• The current account includes trade in goods and services, net income, and net transfers
• The current account handles capital movements, while the capital and financial account covers real trade and income.

  False
• A surplus in the current account may lead to a depreciation of the domestic currency
• What does the trade in goods and services component of the current account measure?

  Exports minus imports
• Net transfers in the current account include remittances and foreign aid.
• The net exports in the current account are calculated as X - M</latex>, where $X$ is total exports and $M$ is total imports.
• Match the transaction type with its key aspect:

  Merchandise Trade ↔️ Physical goods exported and imported

  Service Trade ↔️ Services exported and imported

  Investment Income ↔️ Payments from foreign investments

  Remittances ↔️ Money sent home by workers abroad
• The current account covers capital movements, while the capital and financial account handles real trade and income.

  False
• What are the two main components of the balance of payments (BOP)?

  Current and capital accounts
• The current account records trade in goods and services, net income, and net transfers
• The capital and financial account records capital transfers and financial investments
• What does the current account primarily focus on?

  Real trade and income
• What does the Current Account focus on in the balance of payments?

  Real trade and income
• The Current Account records transactions related to trade in goods and services, net income, and net transfers.
• Net exports are calculated as total exports minus total imports
• What type of income is included in the Current Account?

  Investment income
• The Capital and Financial Account handles capital movements, unlike the Current Account.
• Which type of investment is recorded in the Capital and Financial Account?

  Foreign direct investment
• Net capital and financial flows are calculated as capital inflows minus capital outflows
• Order the internal causes of Balance of Payments imbalances:

  1️⃣ Fiscal policies

  2️⃣ Monetary policies

  3️⃣ Competitiveness
• Match the BOP component with its key elements:

  Current Account ↔️ Trade in goods and services

  Capital and Financial Account ↔️ Foreign direct investment
• The Capital and Financial Account handles capital movements
• What transactions does the Current Account record?

  Trade in goods and services
• Match the BOP component with its key elements:

  Current Account ↔️ Merchandise exports

  Capital and Financial Account ↔️ Portfolio investments
• The Current Account focuses on real trade and income, while the Capital and Financial Account handles capital movements.
• The Current Account records all transactions related to trade in goods and services
• What is the main element of the Current Account related to trade?

  Trade in goods and services
• What is the current account a key component of?

  Balance of Payments
• The difference between exports and imports of merchandise and services is referred to as trade in goods and services.
• Net income includes income earned from investments abroad and paid to foreign investors.
• What are examples of net transfers in the current account?

  Remittances and foreign aid
• The net exports are calculated as X - M, where X is total exports and M is total imports.
• Income earned from foreign investments is part of net income in the current account.
• What does the symbol X represent in the net exports formula?

  Total exports
• Merchandise trade involves the exchange of physical goods between countries.
• What is the primary characteristic of investment income in the current account?

  Payments from foreign investments
• The current account is a key component of the balance of payments
• What does the "trade in goods and services" component of the current account represent?

  Exports minus imports