Question

International finance involves aggregates such as balance of payments, current account, capital account. How do these...

International finance involves aggregates such as balance of payments, current account, capital account. How do these relate, one to another?

Homework Answers

Answer #1

The relation between the three can perhaps be understood by looking at the definition of each of the three terms. Balance of payments is a record of the transactions occurring in between the home country and other foreign countries. It gives us the difference in the money that flows in and out of the country. Current account is the sum of balance of trade, income from abroad and net current transfers in the country. Finally, Capital accounts encompasses the change in the country's physical/financial assets. The way the three are related are that balance of payment constitutes both the Capital account and Current account.

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