|Posted on January 17, 2015 at 11:10 AM|
The balance of payments system keeps record of all foreign transactions. There are two main accounts in the balance of payments system, the current account and capital account.
The current account consists of imports, exports, and foreign transfer payments.
The capital account (or financial account) consists of real assets and financial assets. A real asset is property or a factory. A financial asset is a stock or bond.
When foreign money flows into our current account as a result of an export, our current account is credited. When our currency leaves the capital account after purchasing a foreign apartment complex, the capital account is debited. If one account shows a surplus, the other will show a deficit. In the end, the two accounts should balance.
AP Macroeconomics Unit 6 International Trade