Unit 7

Balance of payment- measures the inflows and outflows between the united states and the rest of the world.
Inflows=credits
outflows=Debits
The balance of payments is divided into the 3 accounts
1) current account
2)capital/Financial account
3)Official Reserves
Real=Real estate& Financial assets= stocks
Current account

• Balance/Net exports= (exports-Imports) 
• (exports is a credit/assets)
• (Imports is debit/liability)
• Net foreign income/foreign investment- income earned by US owned foreign assets and Income paid to foreign held US assets
• Net Transfers/Foreign Aid=(Humanitarian effort 

Official/Reserves

• Foreign currency holding of the US federal reserve bank balance of payments
• official Reserves should zero out to the balance of payments 

Capital/Financial account

• balance of capital ownership includes the purchases of real and financial assets
• Direst investment in US is a credit to the capital account ex;( Toyota factory in Florida)
• Direct investment by US firms individuals in a foreign country or debits to the capital account ex(dell in Costa Rica  
• purchases of foreign financial assets represent a debit to a capital account.ex(Venezuela a large steak in Walmart
• current and capital account should each zero other out