Balance of Payments (1 Viewer)

[Dragie]

...Exact definition of Balance of Payments is..? Kinda stuck on it

 

[Sparcod]

I have a balance of payments woe.
I have an example here.
An American borrows money from an Australian bank.

Under which category- Current Account or Capital/Financial Account would these fall under.
1.The transfer of funds from Australia to the US
2.The repayment of the borrowing (money flows into Aust.)
3.Interest payed to Aust.

It's so complex, it's only One simple event but its confusing. It falls under both.

 

[skyfox01]

balance of payments refers to the trade deficits and also current account deficits doesnt it??

 

[Sparcod]

balance of payments refers to the trade deficits and also current account deficits doesnt it??

Balance of payments comprises of two components- the Current Account and the Capital/Financial Account.

Trade is part of the Current Account.

 

[Bennett88]

Anyone have any idea where can I find good info on Australia's balance of payments?

 

[Sparcod]

Try the above links.
Otherwise the textbooks will have it.
I'm sure ABS has the latest stats so do the those WTO and OECD sites.

 

[gnrlies]

I have a balance of payments woe.
I have an example here.
An American borrows money from an Australian bank.

Under which category- Current Account or Capital/Financial Account would these fall under.
1.The transfer of funds from Australia to the US
2.The repayment of the borrowing (money flows into Aust.)
3.Interest payed to Aust.

It's so complex, it's only One simple event but its confusing. It falls under both.

Ok well, the american borrowing funds from australia would register as a debit to portfolio investment on the financial account.

Only (and this may be in a different BOP period) when the american repays the loan, will it register on any other account. The actual loan repayment will register as a credit on the portfolio investment section of the financial account (as in essence the australian bank is taking the principal of the loan back from america), and the interest will register as an income payment credit on the Current account.

 

[Sparcod]

Thanks very much.
I also learnt that interest is an income on the current account. What is portfolio investment- i thought that it's just shares.

 

[Dragie]

Hey thanks heaps guys! It helped alot

 

[Dragie]

Wait wait another question - Are these the headings for Balance of Payments:

Current Account:
*Goods
*Services
*Net Income
*Net Current Transfers

Capital/Financial Account
*Capital Account (what does this invlove???)
*Financial Account (" ")
*Reserve Assets
*Errors and Omissions

Could someone explain Capital and financial accounts for me please?

 

[j-mo]

Wait wait another question - Are these the headings for Balance of Payments:

Current Account:
*Goods
*Services
*Net Income
*Net Current Transfers

Capital/Financial Account
*Capital Account (what does this invlove???)
*Financial Account (" ")
*Reserve Assets
*Errors and Omissions

Could someone explain Capital and financial accounts for me please?

The capital account involves... well, capital. It's not very influential, to be frank, very little money goes through it.
A great example would be... say, Australia giving money to Africa to specifically build a bridge. It's aid for a specific purpose, I suppose. Most things you would consider as 'capital' (produced means of production) are actually recorded in the current account under goods and services, so you've got to be really careful there.
Does that make any sense?

The financial account is a bit of a longer spiel. So many people have asked about this today... try 'Leading Edge' (the textbook), it talks some sort of sense. If it's still not helping and nobody else has answered, I'll try to get my notes scanned.

Hope that helped!

 

[lilkiwifruit]

Thanks very much.
I also learnt that interest is an income on the current account. What is portfolio investment- i thought that it's just shares.

From what I learnt the other day, Portfolio investment is short term investment that is under 10% of ownership and that it also includes loans.

 

[Dragie]

I learnt that the summation of the current a/c and capital + financial a/c is equivalent to zero. So how do you calculate say...the current account on a BoP statement?

 

[Sparcod]

I learnt that the summation of the current a/c and capital + financial a/c is equivalent to zero. So how do you calculate say...the current account on a BoP statement?

You are correct.
Current Account Deficit (CAD) =Capital/Financial Account Surplus (KAS)

There's minor errors since the CAD doesn't equal the KAS after calculations. These errors go under 'Net errors' in the BOP.

 

[Always]

I learnt that the summation of the current a/c and capital + financial a/c is equivalent to zero. So how do you calculate say...the current account on a BoP statement?

CA = BOGS + Net Y + Net Current Transfers

or

CA = - KAFA

 

[linxicm]

The first post gives u a very detailed infromation about BOP.just read it....

 

[Demandred]

http://www.smh.com.au/news/business...ns-in-debt-tale/2006/03/03/1141191846676.html

Awesome report on what's happening.

It doesn't look good, does it?

 

[Sparcod]

Foreign debt- 51% of GDP
CAD- 6.1% of GDP.

Hey, I still don't get the diffference between net foreign liablities (debt we owe) and CAD.

Basically, if you couldn't bother reading it.
CAD is growing due to
1.costs in servicing of debt and
2.recessions in Europe and America forcing them to cut interest rates (they wanna encourage borrowing; at the same time, we're borrowing money from their banks and we have to pay them INTEREST)
3.Mining boom. The profits are going overeseas.

Our terms of trade is pretty good.

 

[Demandred]

Net foreign liabilities increase as CAD grows. Simply said, we owe them money, so we sell our own assets to cover the debt. So far 51% has been sold.

 

[Sparcod]

51% of GDP in shares, companies, assets, money??