ECON 103 Lecture 10: Lecture 10
28 Jul 2016
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Current account book = exports-imports: all exports and imports recorded here, money goes back to country in form of goods, current account is all transactions of current period. Ex: when you get your paycheck you go out immediately and buy a new pair of shoes: any money not spent on current account (surplus) is invested. The surplus is invested in the country where imports come from. Capital account book = investments: money goes back to country in form of investments, 4 types of investments: Buying equity ownership (buying ownership in america- based firms). Ex: buying stocks and bonds of american firms. The country believes the value of the foreign currency will rise in the future, and therefore will be able to exchange it for a higher rate in the future. Current account + capital account = sh: current account and capital account cancel each other out. Current account deficit + capital account surplus = sh.
