Unit 7 May 8

Balance of Payments
-measure of money and the rest of the world
               -inflows are credit
               -outflows are referred to as debit 
3 accounts
-current account
-capital/financial account
-official reserves account

Current Account
Balance of Trade or Net Exports
-exports of goods and services-imports of goods and services
-exports are credit
-imports are debit
Net Foreign Income
-income earned by US owned foreign assets-Income paid to foreign held US assets
Net Transfers
foreign aide---> a debit to the current account 

Capital/ Financial Account
-the balance of capital ownership 
-includes the purchase of both real and financial assets
-Direct Investment in the united States is a credit to the capital account
ex: Toyota factory in San Antonio
-Direct Investment by US firms/Individuals in a foreign country are debits to the capital account 
ex: The intel factory in San Jose, Costa Rica 
-Purchase of foreign financial assets represents a credit to the capital account 
- the current account and the capital account should zero each other out 
-That is...if the current account has a negative balance(deficit) the capital account should have a positive balance(surplus) 


Official Reserves
-the foreign currency holdings of the US FED 
-when there is a balance of payments surplus the FED accumulates foreign currency and debits the balance of payments
-when there is a balance of payments deficit the FED depletes its reserves of foreign currency and credits the balance of payments
-The official Reserves zero out the balance of payments