Balance of Payments (5/4)

Balance of Payments (5/4)

• measure of $ inflows & outflows btwn U.S. and RestofWorld (ROW)

• inflow - CREDIT

• outflow - DEBIT

3 Accts

• Current Acct
• Capital/Financial Acct
• Official Reserves Acct

Current Acct

• Balance of Trade or Net Export
• Exports - Imports
• Exports create credit in BoP
• Imports create debit
• Net Foreign Income
• Income earned by U.S. owned foreign assets - income paid to foreign held US assets
• Net Transfers (Tends to be Unilateral)
• Foreign Aid is debit
• migrant workers sending earned money to family in Mexico

Capital Acct

• Balance of capital ownership
• include the purchase of real & financial assets
• direct investment in the US is a credit
• Toyota Factory in San Antonio
• direct investment by US firms/individuals in a foreign country, a debit
• Intel Factory in Costa Rica
• purchase of foreign financial assets, a debit
• Warren Buffet buys stocks in PetroChina
• purchase of domestic financial assets by foreigners, a credit
• UAE purchases stock from NASDAQ

Official Reserves Acct

• foreign currency holdings of US Fed
• balance of payments surplus, FED accumulates foreign currency & debits to BoP
• BoP deficit, FED depletes its reserves of foreign currency & credits the BoP