Current Account Balance
CHAPTER 1
Overview of Current Account Balance
* Introduction:
The current account is the difference between exports of goods and services and imports of goods and services. If we denote the current account balance by CA, we can express this definition in symbol as
CA = EX – IM
The current account balance is one of two major measures of the nature of a country's foreign trade (the other being the net capital outflow. A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.
The balance of trade is the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers, investments and other components are ignored. A Nation is said to have a trade deficit if it is importing more than it exports.
A positive net sale abroad generally contributes to a current account surplus; a negative net sale abroad generally contributes to a current account deficit. Because exports generate positive net sales, and because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports.
The net factor income or income account, a sub-account of the current account, is usually presented under the headings income payments as outflows, and income receipts as inflows. Income refers not only to the money received from investments made abroad but also to the money sent by individuals working abroad, known as remittances, to their families back home. If the income account is negative, the country is paying more than it is taking in interest, dividends, etc.
The various subcategories in the income account are linked to specific respective subcategories in the capital account, as
Overview of Current Account Balance
* Introduction:
The current account is the difference between exports of goods and services and imports of goods and services. If we denote the current account balance by CA, we can express this definition in symbol as
CA = EX – IM
The current account balance is one of two major measures of the nature of a country's foreign trade (the other being the net capital outflow. A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.
The balance of trade is the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers, investments and other components are ignored. A Nation is said to have a trade deficit if it is importing more than it exports.
A positive net sale abroad generally contributes to a current account surplus; a negative net sale abroad generally contributes to a current account deficit. Because exports generate positive net sales, and because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports.
The net factor income or income account, a sub-account of the current account, is usually presented under the headings income payments as outflows, and income receipts as inflows. Income refers not only to the money received from investments made abroad but also to the money sent by individuals working abroad, known as remittances, to their families back home. If the income account is negative, the country is paying more than it is taking in interest, dividends, etc.
The various subcategories in the income account are linked to specific respective subcategories in the capital account, as