Differentiate Among the Current Account, Balance of Trade and Balance of Payments.

Topics: International economics, Balance of trade, Macroeconomics Pages: 2 (563 words) Published: June 13, 2012
Differentiate among the current account, balance of trade and balance of payments. Current account is the net profits that a country gain from its export and imports of goods and services, earning from foreign investment also the included the profits from transfer of payments. Current account is important because it includes all international merchandise trade and service accounts, that is, accounts for the value of all merchandise and services imported and exported and all receipts and payments from investments. (Cateora, Gilly & Graham 2010) The current account balance is one of the major measures to determine the nature of a country's foreign trade. A current account outstanding increase will directly add to in a country's net foreign assets by the corresponding amount and a deduction of the amount in current account does the reverse of the above situation. Both government and private payments are included in the calculation for the amount in current account. Current account got its name as the current account because all the goods and services accounted in it are generally consumed in the current period. Differ from the current account; what accounted in the balance of trade is the difference between a nation's exports of goods and services and its imports of goods and services, with the assumption of all financial transfers, investments and other components are being ignored. A Nation is said to have a drop in its trade if it is importing more than it exports. The balance of trade forms part of the current account, which includes other transactions such as income from the international investment position as well as international aid. If the current account is in spare, the country's net international asset position increases correspondingly. Equally, if the current account decreases, it will result in a drop in the net international asset position. The factor that is deeply concern in the balance of trade is the trade balance. The trade balance is...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay on The U.S. Balance of Payments: Current Account Deficit
  • Balance of Payment Essay
  • Essay about balance of payment
  • Current Account Balance Essay
  • Balance of Payment Essay
  • balance of payment Essay
  • Balance of Payments Essay

Become a StudyMode Member

Sign Up - It's Free