Hi guys, Just going through the Schweser study notes when I came acress the question: Q: Which of the following statements regarding the elements of the balance of payments and their role in exchange rate determination is least accurate? The answer given was. b: Of the four accounts, the capital account generally has the greatest impact on the balance of payments The explanation was. The capital account is comprised of unilateral transfers, such as debt forgiveness or investment capital given without future repayment, and generally has very little impact on the balance of payments. My Problem: I don’t see how there are 4 accounts in the BoP, and I thought the capital (financial) account did have the greatest impact… Unilateral transfers fall under the current account don’t they, not the capital (financial) account?? I am really confused…help!
Can someone please help with this, appreciate it!
Duff question. I think that this comes from an old definition of capital account, which has now been combined into the financial account. Just to make things more confusing, the terms “capital” and “financial” are now used interchangeably. Anyway, the financial (capital) and current should be more or less identical in size, so that option was still least accurate Stick to the 3 accounts: Current, capital (or financial) and official settlements.