q on BOP (1 Viewer)

[hatty]

hey

what are the differences between the current account and capital and financial account?

i keep reading but i cant get it

thanks

 

[pigs_can_fly]

lol...current account is basically net imports and exports of services, as well as net income (oe. stuff like interest payments, dividends), and current transfers (negligible). capital and financial account is like inflow and outflow of capital (eg. debt and/or equity purchases), capital transfers, and other stuff, which i forget cos its all too long ago. wait till agb comes back, im sure he'll have more stuff on it

 

[Lainee]

I was just writing a summary from the Dixon textbook on this very subject. I think the best way is to say that the Current Account covers external transactions that are not reversible (eg. money flow from all export and imports of goods and services, income and current transfers) and Capital and Financial Account are transactions that are reversible - because borrowings can be repaid and assets that are bought can be sold again (eg. money flows from international borrowing, lending and purchases of assets).

 

[rukawasan]

lainee... gud summary...
ca is non-reversible one-way transaction... that is a transaction thats complete once money flows from one country to the other... whereas kfa is reversible two-way transaction... that is a transaction that stipulates a return...

 

[hatty]

thanks alot guys

so is this correct

current account is when foreigners invest into australia, and the outflow of returns is counted as a debit.
vice versa when Aus invests in a foreign country

where as the capital financial account
is the actual investment by australia or the foreign countr, and that inflow of money is counted as a credit

is this correct?

thanks

 

[hatty]

please

 

[Aj10001]

Nah sorry Hatty, you are still confused. Think of it like this:

Current Account (balance on goods and services, and net income)

Capital and Financial Account (money lent and borrowed between countries)

So lets say that australia imports more than it exports and therefore has a current account deficit of $500 million. It will need to borrow $500 million to pay for this deficit, which is showed as a surplus on the capital and financial account. This is why:

Current Account Deficit = Capital and Financial Account Surplus