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 DEFINITI N
‡ The „

 is a measure of
the payments that flow from one country to
another. It is determined by a country's
export and imports of goods, services, and
financial capital, as well financial transfers
 h

ENT Ahh NT
If more money flows in than out, one has a positive
balance of payments - if more flows out than in,
one has then a negative balance. The money
flowing over the border is like other money
paying for goods, commodities,real
estate,services, securities.
The balance of payments is usually separated into:
‡ hurrent account. Goods and services.
‡ Financial account. Financial assets. (Stocks.
monds FDIs).
 hA
ITAL Ahh NT
‡ hapital account. Non-financial assets.
‡ Money coming in (+), or leaving (í):
‡ + Exports
‡ í Imports
‡ í Increase of owned assets abroad
‡ + Increase of foreign-owned assets in the
country
‡ A negative current account must by definition be
balanced by a positive capital account. The S
have been running a negative current account for
a long while, which is financed through a positive
financial account. The only way to buy more than
you sell is to borrow money.
‡ The balance of trade is a more fundamental
measure of underlying goods and services, rather
than the money that pays for them. bviously the
two are related to some degree, or else trade and
payments would probably not continue.
International investment position
‡ A country's international investment
position is the result of its "financial
account" in the balance of payment. The
"financial account" record the transaction
of things that are not imports/exports, but
things that are in and stay in the country.
For example stock of companies, real
estate etc.
 India¶s Trade Deficit
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LAINED
*hurrent
1.
ecurring merchandise
2. Service trade
3.
rivate gifts
4.
ublic aid transactions between two counties
*hapital
1. FDI-Direct investments involving control of a firm with
20% or more equity
2.
ortfolio investment less than 20% equity
3. ther short or long term capital flow
Trade balance can be positive or negative