International Economic Relations and the Balance of Payments.steemCreated with Sketch.

in #blog5 years ago

The accounts of a nation with the outside are similar to those of a company or family. Families and businesses make collections and payments to other families and businesses and, in light of their total income and expenses, incur a deficit or a surplus. The main difference between the accounts of a family or a company and the accounts of a nation lies in the fact that in the latter there are mixed operations carried out in many different currencies.

The accounting instrument capable of allowing the monitoring of the relations of a given economy with the rest of the world is the balance of payments.

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The balance of payments is an accounting document that systematically records the set of economic transactions of a country with the rest of the world during a determined period of time, usually one year.

The balance of payments provides detailed information about all economic transactions abroad, whether they are goods and services transactions or financial transactions.

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The general structure of a balance of payments and the different subbalances and for the balance of payments as a whole, the difference between income and payments is called the balance.

The transactions recorded by the balance of payments are grouped into two broad categories, which integrate the current account balance and the capital account balance.

Balance by current account.

Current account transactions are purchases and sales of goods and services, as well as current unilateral transfers. The current account balance includes all those transactions that give rise to a generation of income in our country (exports) or abroad (imports) and those transactions that, without generating income, give rise to greater or lesser availability of income. rent for spending, that is, current transfers.

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The current account balance is integrated by the trade balance, the balance of services and the balance of transfers.

Every country exchanges goods with other countries. Those that buy abroad are called imports and those that sell other countries are exports.

The trade or earnings balance includes the income and payments generated by the movement of goods. Exports of intermediate and final goods are income from this sub-balance, while, on the contrary, imports of said goods are payments.

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Along with the merchandise, the whole country buys and sells services. The balance of services is closely linked to the evolution of tourism., To the import needs to the possibilities of exporting technology and to the returns of investments abroad or the rest of the world in the country. The activities that involve the payment as consideration for a service constitute the imports of services. Exports of services are constituted by all activities similar to those referred to, but which involve charging by economic agents.

The balance of services registers the monetary flows due to services performed by the country to the rest of the world (income or exports) or from the rest of the world to the country considered (payments or imports).

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All the types of international transactions described so far include operations in which real resources are delivered or received in exchange for others. The same does not apply to so-called transfers, in which deliveries are made free of charge or without compensation and which require special accounting. The remittances sent by the citizens of a country that work in other countries and the governmental donations are the most representative items of this type of international transactions. The balance of transfers includes the income and payments that are aligned counterparts.

The current account measures the value of the net income or net expenses of a country derived from international transactions of goods and services with and without a counterpart and its balance is given by:

Since the balance of trade, services and transfers constitutes the current account balance, its balance reflects the existing imbalances between the value of goods and services acquired from the rest of the world (imports of goods and services) and those sold. abroad (exports of goods and services) plus (or less) net transfers.

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The current account registers a deficit (surplus) when the expenses derived from the purchase of goods and services and the transfers exceed (are lower) the income. The balance of the current account balance, that is, the difference between income and expenses, must be the same but opposite to the balance of the balance on account of capital.


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