Balance of Payment

CFA Level II
#1

As per CFAI text the foreign aid is considered in the capital account but investopedia says it should be considered in current account. Do you guys know why is there a discrepency between these two and where should it go?

#2

Seems more like capital account then current account. Current account is more for capturing trades (imports / exports) whereas capital account is more for investment cashflows.

#3

I frequently subsidize the CFAI materials with Youtube Videos, Investopedia, Schweser, Elan etc. — But at this stage in the game I don’t know how this could even be a question.

Know the CFAI definition and move on —

There’s the CFAI way…or the “See you again next year in the Lvl 2 Forum” way…

#4

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#5

Actually it is current account. And schewser also correctly mentions that. Dont know where you got the idea though. Current account has

  1. exchange of goods and services
  2. investment income (recipts - dividends etc)
  3. unilateral transfers - aid etc

Capital account has

  1. Debt and Equity investments
  2. Title transfer payments (land etc)

Official reserve account has

  1. foriegn curr reserves of government
  2. SDR at IMF

That is my understanding

#6

Now you’re on to something –

Page 655 CFAI book one – Current account includes transfers… including government aid to developing countries

Page 656 CFAI BOok One – Capital Account includes(unilatteral) transfers that are investment capital (w/out expecting future repayment) in favor of poor countries, debt forgiveness and expropriation losses.

I think (HOPE) we are wayyyy out in the weeds on these descrepencies…