Current account / captial account (1 Viewer)

[diggler]

Could someone please clarify the relationship between these two? If I buy a Sony Playstation, that is a debit on the current account as I purchase a good from Japan. I pay for it in cash so there is no foreign debt. Is there meant to be a corresponding amount on the capital account? Under a floating exchange rate system , the capital account balances the current account, right? Apologies for the really dumb question.

 

[HayleeKate]

Youre individual purchase isnt whats recorded normally, it would be the retailer in australia you bought it from that is recorded with their transaction to the japanese wholesaler, (unless you buy it directly yourself, like mail order or something, not so sure about that). The link between Capital/Financial & Current Accounts:
**Investment and foreign inflows come in capital/financial.. to fund australian developements etc. The returns, (dividends & interest) on this goes out on the Current Account (income section).
**When there is a CAD, it needs to financed by the inflows of foreign funds on the capital/financial accounts.
The captial account ALWAYS balances the Current account.

 

[nick1048]

yup thats the relationship. Your playstation purchase has many other strings attached by the way. You are paying taxes and intellectual property rights, these each fall under different economic classes. Sorry to further confuse you, but when learning about the BoP, I believe the best way is a theoretical approach. Practicallity becomes confusing