Professional Documents
Culture Documents
Exchange Rates
and the Balance
of Payments
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Balance of Payments
A system of accounts that measures transactions
of goods, services, income and financial assets
between domestic households, businesses, and
governments and residents of the rest of the
world during a specific time period
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Disequilibrium
If expenditures exceed income, the situation
cannot continue indefinitely
Equilibrium
Households, businesses, and governments must
eventually reach equilibrium
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Current Account
A category of balance of payments transactions
that measures the exchange of merchandise, the
exchange of services and unilateral transfers
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Unilateral transfers
Gifts from citizens and from governments
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Capital Account
A category of balance of payments transactions
that measures flows of real and financial assets
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Question
What affects the balance of payments?
Answers
Relative rate of inflation
Political stability
Capital flight
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Exchange Rates
The price of one nations currency in terms of
another
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Depreciation
An decrease in the exchange value of one nations
currency in terms of the currency of another nation
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