Balance of payments

1. Balance ofpayments Author: Pavel Tolar

2. Balance ofpayments – generaldescription Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financialcapital, and financialtransfers. When all components of the balance ofpayments accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways – such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries.

3. Basic analysis Thetwoprincipalpartsofthe Balance OfPaymentsaccounts are thecurrentaccountandthecapitalaccount. Currentaccount Capitalaccount

4. Currentaccount current account is one of the two primary components of the balance ofpayments, the other beingcapitalaccount. It is the sum of the balance iftrade (i.e., net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers. In the traditional accounting of balance of payments, the current account equals the change in netforeignassets. A current account deficit implies a paralleled reduction of the net foreign assets.

5. How to calculate the current account Goods - Beingmovableandphysical in nature, goods are oftentraded by countriesallovertheworld. Services - In econimics, a service is an intangiblecommodity. More specifically, services are an intangible equivalent of economicgoods. Income - A credit of income happens when an individual or a company of domestic nationality receives money from an incorporate or individual with foreign identity. CurrentTransfers - Current transfers take place when a certain foreign country simply provides currency to another country with nothing received as a return. Typically, such transfers are done in the form of donationsor official assistance.

6. A formula for calculating current accounts certain country's current account can be calculated by the following formula: When CA is the current account, X and M the export and import of goods and services respectively, NY the net income from abroad, and NCT the net current transfers.

7. Capital (financial) account In macroeconomics and international finance, the capital account (also known as financial account) is one of two primary components of the balance ofpayments. Whereas the current account reflects a nation's net income, the capital account reflects net change in national ownership of assets.

8. Partsofcapitalaccount Foreigndirectinvestments Portfolio investments Otherinvestments Reserveaccount

9. Foreigndirectinvestments refers to long term capital investment such as the purchase or construction of machinery, buildings or even whole manufacturing plants. If foreigners are investing in a country, that is an inbound flow and counts as a surplus item on the capital account. If a nation's citizens are investing in foreign countries, that's an outbound flow that will count as a deficit. After the initial investment, any yearly profits not re-invested will flow in the opposite direction, but will be recorded in the current account rather than as capital

10. Portfolio investments refers to the purchase of shares and bonds. It's sometimes grouped together with "other" as short term investment. As with FDI, the income derived from these assets is recorded in the current account; the capital account entry will just be for any international buying or selling of the portfolio assets

11. Otherinvestments includes capital flows into bank accounts or provided as loans. Large short term flows between accounts in different nations are commonly seen when the market is able to take advantage of fluctuations in interest rates and / or the exchange rate between currencies. Sometimes this category can include the reserve account

12. Reserveaccount The reserve account is operated by a nation's central bank to buy and sell foreign currencies; it can be a source of large capital flows to counteract those originating from the market. Inbound capital flows (from sales of the account's foreign currency), especially when combined with a current account surplus, can cause a rise in value of a nation's currency, while outbound flows can cause a fall in value (depreciation). If a government (or, if authorized to operate independently in this area, the central bank itself) doesn't consider the market-driven change to its currency value to be in the nation's best interests, it can intervene.

13. Balance ofpaymentsCzechRepublic – Develepment

14. Topicsfordiscussion What are themainaccountsof balance ofpayments? Isthe balance ofpaymentsofCzechrepublic in surplusor deficit?