Quick question about the flow of currency and the Current Account. The CFAI text explains that if the US exportsgoods, the country purchasing those goods pays for them using USD. In the section of reading 17 which explains the current/capital account, it specifically says that items with a plus sign (+) in front of them are sources of foreign currency for the U.S. So, if we get paid in USD for our exports, and our current account shows a + in front of exports, how is this a SOURCE of FOREIGN currncy for the US? Wouldn’t they receive USD for exports? This is driving me nits so, thanks to anyone who can help. pp.617-618 in CFA text, volume 1
Say you live in Iceland and want to buy a GM car. To buy our exports you pay GM in USD, but first you must buy USD…we (think of “we” as “the country”) sell USD FOR foreign currency. When we SELL USD we are BUYING foreign currency. So our exports are ultimately a SOURCE of foreign currency. Hope this helps.
that finally makes sense! Thanks a lot, it’s been pissing me off for a few days!