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Jeanne Stansak
Balance of Payments accounts measure all international transactions in a year. This includes the sale and purchase of goods/services and assets. There are two accounts within the balance of payments: (1) the current account, and (2) the capital account.
The current account includes the following components:
The capital account includes the following components:
Let's look at some different examples from the current and capital account:
💡 A quick way to determine if an asset is positive or negative is:
Sample Balance of Payments Between Two Countries
Looking at the example above, the United States has a trade deficit of $500 ($300 Exports - $800 Imports) and China has a trade surplus of $500 ($800 Exports - $300 Imports).
The value of the current account for the United States is a deficit of $600. This is calculated by adding the trade deficit of $500 to the $100 in humanitarian aid that is leaving the country, so it is negative. You would also include the purchases made by Chinese tourists and money spent by American tourists but since those amounts are both $1000 they cancel each other out.
The value of the current account for China is a surplus of $600. This is calculated by adding the trade surplus of $500 to the $100 in humanitarian aid that they are receiving from the United States which is positive. You would also include the purchases made by Chinese tourists and money spent by American tourists but since those amounts are both $1000 they cancel each other out.
The value of the financial account for the United States is a surplus of $600. This is calculated by adding the +$600 they receive for the purchase of a U.S. business by the Chinese, the +$200 they received from the Chinese government purchase of U.S. bonds, and the -$200 spent on the American investment in the Chinese stock market ($600+$200-$200).
The value of the financial account for China is a deficit of $600. This is calculated by adding the -$600 spent on the U.S. business, -$200 spent on the purchase of U.S. bonds, and the $200 they received from the investment by the U.S. in the Chinese stock market. (-$600-$200+$200).
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