Re: Balance of payments


"Curt" <curt2@xxxxxxxxxxxx> wrote in message
news:URO4e.12505$vv2.5543@xxxxxxxxxxxxxxxxxxxxxxx
> Hi,
>
> I'm an A-level student in the UK. We have been told that the
> balance-of -payments always balances; the usual deficit in the current
> account is always balanced by a surplus in the financial and capital
> account. I've asked my economics teacher why, but she did not really give me
> a satisfactory answer...she kind of just restatated what ive said above but
> did not explain.
>
> Sorry if this seems really basic, but after searching the web for some time,
> I still have not found a simple answer.
>
> Thanks,
>
> Curt
>

Suppose you and I were countries. My currency was the dollar and yours the
pound. If I bought more stuff from you than you did from me, you would end up
with extra dollars. (The current account is a little more complicated but that
is the basic idea.) You might then invest those extra dollars in my country
and that is included in the capital account. I believe - but I'm not 100%
sure - that the leftover currency that you hold is also included in the
capital account as foreign reserves - making everything balance.

(And I'm not sure what you mean by the financial account.)


Bill


.

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