INTL 2200 Lecture Notes - Lecture 10: Special Drawing Rights

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Record of all international transactions between nation and rest of the world. Trade occurs in goods, services, assets (financial assets), no constraints on amount imported or amount exported. We can run a surplus or deficit if needed. Receipts: exports of goods/services + inflow of investment income + inflow of government transfers. Payments: imports of good/services + outflow of investment income + outflow of government transfers. Theory: (double-entry bookkeeping, not necessarily true in practice) Current account balance + capital/financial balance = 0. Therefore: if current account is surplus, then capital/financial will have the same amount in magnitude in deficit, and vice versa. Reason why current account balance + capital/financial balance = 0 is because dr/cr will always be equal (think like accounting). Any transaction that gives rise to a receipt from abroad is recorded on credit (+); anything that is shipped out (exports)

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