International economics

Table of Contents

1. Topic pack - International economics - introduction
2. Section 3.1 International trade (notes)
3. Section 3.1 International trade (questions)
4. Section 3.1 International trade - simulations and activities
5. Section 3.2 Exchange rates (notes)
6. Section 3.2 Exchange rates - questions
7. Section 3.2 Exchange rates - simulations and activities
8. Section 3.3 Balance of payments - notes
   1. BOPs - introduction
   2. Credits and debits
   3. Current account
   4. Capital account
   5. Financial account
   6. Relationship between accounts
   7. Balance of payments - calculation
   8. Current account & floating exchange rate
   9. Current account & fixed exchange rate
   10. Balance of payments problems
   11. Consequences of deficit / surplus
   12. Policies to correct a balance of payments disequilibrium
   13. Consequences of a financial account deficit / surplus
   14. Marshall-Lerner condition
9. Section 3.3 Balance of payments - questions
10. Section 3.4 Economic integration - notes
11. Section 3.4 Economic integration - questions
12. Section 3.5 Terms of trade - notes
13. Section 3.5 Terms of trade - questions
14. Print View

Current account

The current account records money flows from imports and exports of goods (the 'balance of trade' or 'visible balance') and imports and exports of services (sometimes 'invisible trade'). It also records income flows (flows of interest, profits and dividends that may have arisen from investment flows) and transfers of money.

The current account balance is the net balance of all of these items.

The major components of the current account are:

• The balance of goods account
• The balance of services account
  When combined,these two accounts are commonly known as trade in goods and services account. A difference in the monetary value of exports and imports, in the trade in goods and services account, is known as the balance of trade.
• The balance of income
  Income flows consist of investment income such as interest, dividends, and payments of profits and reinvested earnings on direct investment.
• The balance of current transfers
  Current transfers consist of receipts and payments, where there is no corresponding exchange such as foreign aid and contribution to international organisations such as the European Union. This account also includes international transfers of money by private individuals, such as workers' remittances.

The balance of goods is also known as visible or merchandise balance, whereas the other three balances are sometimes referred to as the invisible balance.

The sum of the balances of the four components of the current account is known as the current account balance. A current account balance is in surplus if overall credits exceed debits and in deficit if debits exceed credits.