Summary of Key Balance of Payments Concepts

Trade Balance
Exports of goods
Less: Imports of goods
Trade Balance

Current Account
Trade Balance
Add: Exports of Services
Add: Interest, dividends and profits received
Add: Unilateral Receipts
Less: Imports of Services
Less: Interest, dividends and profits paid
Less: Unilateral Payments
Current Account Balance

Capital Account
Investment Abroad (-) (negative, due to decrease in assets)
Less: Short-term lending
Less: Medium- and Long-term lending
Less: Repayment of borrowing to ROW
Add: Inward Foreign Investment
Add: Short-term borrowing
Add: Medium- and Long-term borrowing
Add: Repayment on loans received from ROW
Capital Account Balance

Statistical Error
Zero (0)
Less the Sum of the Following
Current Account Balance
Capital Account Balance
Financial Account Balance
Statistical Error

Official Settlements Balance

Current Account Balance
Add: Capital Account Balance
Add: Statistical Error
Official Settlements Balance
 Financial Account Balance
Change in Reserves rise (-), fall (+)
Add: MF borrowing from (+), repayments to (-)
Financial Account Balance

Nominal Exchange Rate

Foreign Exchange Rate Next Period
Nominal Exchange Rate= x 100
Foreign Exchange Rate Base Rate

Real Exchange Rate

Price Index Domestic Level
Real Exchange Rate=Nominal Exchange Rate ( )
Price Index Foreign Level

Effective Exchange Rate

Effective xchange Rate=( R1 ) ( W 1 ) + ( R 2 )( W 2 ) +…+ ( R n )( W n )

Where: R1 = Real Exchange Rate of First Foreign Currency

W1 = Weight of the First Foreign Currency
R2 = Real Exchange Rate of Second Foreign Currency
W2 = Weight of the Second Foreign Currency
Rn = Real Exchange Rate of the nth Currency
Wn = Weight of the nth\ Foreign Currency