Balance of Payments (1 Viewer)

[michaeljennings]

Okay so i understand that conditional aid is recorded in the capital account so where does unconditional aid get recorded??

 

[powlmao]

Should be the Current Account

http://www.investopedia.com/articles/03/060403.asp#axzz1UhYmxHrt

The Current AccountThe current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account.

Within the current account are credits and debits on the trade of merchandise, which includes goods such as raw materials and manufactured goods that are bought, sold or given away (possibly in the form of aid). Services refer to receipts from tourism, transportation (like the levy that must be paid in Egypt when a ship passes through the Suez Canal), engineering, business service fees (from lawyers or management consulting, for example), and royalties from patents and copyrights. When combined, goods and services together make up a country's balance of trade (BOT). The BOT is typically the biggest bulk of a country's balance of payments as it makes up total imports and exports. If a country has a balance of trade deficit, it imports more than it exports, and if it has a balance of trade surplus, it exports more than it imports.

Receipts from income-generating assets such as stocks (in the form of dividends) are also recorded in the current account. The last component of the current account is unilateral transfers. These are credits that are mostly worker's remittances, which are salaries sent back into the home country of a national working abroad, as well as foreign aid that is directly received.


Read more: http://www.investopedia.com/articles/03/060403.asp#ixzz1UhZ6kN89

Current account is all inflows and outflows of an economy.

 

[michaeljennings]

when it says directly received does that imply that it is conditional? or does directly received mean its unconditonal?

 

[powlmao]

Directly recieved just means anything which is given straight away (Like when Australia gives money to developing Nations to support them, or when other countries gave money to Australia to support the Bushfires and floods)

The only difference between unconditional and conditional aid is, conditional aid comes at a cost (e.g. If a country stops a war) and conditional aid comes without restricitions.

They should both fall in the same area.

 

[michaeljennings]

oh? Cos my textbook says "Capital transfers in the form of conditional aid such as an Australian donation to build a bridge in the Solomon Islands are recorded in the Capital Account" ??? But your source says its the current account

 

[powlmao]

the current account reflects a nation's net income, the capital account reflects net change in national ownership of assets.

 

[powlmao]

oh? Cos my textbook says "Capital transfers in the form of conditional aid such as an Australian donation to build a bridge in the Solomon Islands are recorded in the Capital Account" ??? But your source says its the current account

I believe it said it would be a Capital account because a Bridge is an asset, and assets go in Capital Account