EECS 1520 Lecture Notes - Lecture 12: Portfolio Investment, Capital Account
21 Jun 2018
School
Course
Professor
EECS 1520 Lecture 12 Notes
Introduction
Current Account
The capital account represents a summary of the flow of funds resulting from the sale of
assets between one specified country and all other countries over a specified period of
time
Thus, it compares the new foreign investments made by a country with the foreign
investments within a country over a given time period.
The financial account refers to special types of investment, including DFI and portfolio
investment.
For all three accounts, transactions that reflect inflows of funds generate positive
numbers (credits) for the country’s balance whereas transactions that reflect outflows
of funds generate negative numbers (debits) for its balance.
The main components of the current account are payments for (1) merchandise (goods)
and services, (2) factor income, and (3) transfers.
Payments for Goods and Services
Merchandise exports and imports represent tangible products, such as computers and
clothing that are transported between countries.
Service exports and imports represent tourism and other services (such as legal,
insurance, and consulting services) provided for customers based in other countries.
Service exports by the United States result in an inflow of funds to the United States,
while service imports by the United States result in an outflow of funds.
The difference between total exports and imports is referred to as the balance of trade.
A deficit in the U.S. balance of trade means that the value of merchandise and services
exported by the United States is less than the value of merchandise and services that it
imports.
54
EECS 1520 Full Course Notes
Verified Note
54 documents
Document Summary
The capital account represents a summary of the flow of funds resulting from the sale of assets between one specified country and all other countries over a specified period of time. The main components of the current account are payments for (1) merchandise (goods) and services, (2) factor income, and (3) transfers. Merchandise exports and imports represent tangible products, such as computers and clothing that are transported between countries. A deficit in the u. s. balance of trade means that the value of merchandise and services exported by the united states is less than the value of merchandise and services that it imports. Before 1993, the balance of trade was based solely on merchandise exports and imports. In 1993, it was redefined to include also service exports and imports. Capital account represents a summary of the flow of funds resulting from the sale of assets between one specified country and all other countries over a specified period of time.
