Hi, I’m reading on the BOP and specifically the current account and in the definion it says that the current account consists of merchandise goods/services, investment income and unilateral transfers. Now my question is what exactly is this investment income and why is it not part of the capital account? Thanks
investment income = dividend and interest. They are result of earlier investments recorded in capital account
The current account is this: 1. Net Exports = Export - Imports = (Govt expenditures - net tax receipts) + (Private investment - savings) 2. Income from investments (it’s included in the current account because it’s the current portion of the return on that investment) 3. transfers
okay let me re-phrase this questions. What exact transactions go into the investment income part of the current account and what goes into the capital account? Can you give me examples of what would be classifed differently? Thanks
Chinese investors buy US bonds --> Positive US financial account. US bonds pays coupons to Chinese investors --> Negative US current account. Chinese investors sell back US bonds with a profit or loss --> Negative US financial account. Remember also: balance of payments must be = 0, so US trade deficit, i.e., negative US current account, means positive financial account, ie. some foreign investors are investing in US (using proceeds from the export to the US)
elcfa Wrote: ------------------------------------------------------- > Chinese investors buy US bonds --> Positive US > financial account. > > US bonds pays coupons to Chinese investors --> > Negative US current account. > > Chinese investors sell back US bonds with a profit > or loss --> Negative US financial account. > > > Remember also: balance of payments must be = 0, so > US trade deficit, i.e., negative US current > account, means positive financial account, ie. > some foreign investors are investing in US (using > proceeds from the export to the US) Thanks for this so basically if a country are paying/receieving dividend or interest payments it goes in the current account and if they are realising a capital G/L then it goes into the financial account?
> Thanks for this so basically if a country are > paying/receieving dividend or interest payments it > goes in the current account and if they are > realising a capital G/L then it goes into the > financial account? as well as all original investments and repatriation of those principals go to financial account.