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Balance of Payments Analysis

Balance of Payments Analysis. Basic Concepts. Composition of the BP. Major sub-balances: Trade of goods Trade of services Unilateral transfers Capital in- and outflows Errors and omissions Reserve position. The Trade Balance. Trade in goods (“visibles” Trade in services (“invisibles”)

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Balance of Payments Analysis

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  1. Balance of Payments Analysis Basic Concepts

  2. Composition of the BP • Major sub-balances: • Trade of goods • Trade of services • Unilateral transfers • Capital in- and outflows • Errors and omissions • Reserve position

  3. The Trade Balance • Trade in goods (“visibles” • Trade in services (“invisibles”) • We will use the symbol “NX” (net exports) for this account

  4. Services • This sub-account includes items like tourism, insurance, royalties, etc. • Most importantly: the service balance also includes interest payments

  5. The Capital and Financial Account • The capital and financial account (CFA) includes the in- and outflow of capital such as direct investment, amortization payments, and credit.

  6. The international reserve position • The reserve position registers the net change of international reserves.

  7. Central Principle of BP Accounting • Monetary “Inflows” are actives (+) • Monetary “Outflows” are passives (-)

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