MEA-4.A—a. Define the current account (CA), the capital and financial account (CFA), and the balance of payments (BOP). b. Explain how…

a. Define the current account (CA), the capital and financial account (CFA), and the balance of payments (BOP). b. Explain how changes in the components of the CA and CFA affect a country’s BOP. c. Calculate the CA, the CFA, and the BOP.

• The current account (CA) records net exports, net income from abroad, and net unilateral transfers.
• The CA is not always balanced; it may show a surplus or a deficit. A nation’s balance of trade (i.e., net exports) is part of the current account and may also show a surplus or a deficit.
• The capital and financial account (CFA) records financial capital transfers and purchases and sales of assets between countries.
• The CFA is not always balanced; it may show a surplus (financial capital inflow) or a deficit (financial capital outflow).
• The balance of payments (BOP) is an accounting system that records a country’s international transactions for a particular time period. It consists of the CA and the CFA.
• Any transaction that causes money to flow into a country is a credit to its BOP account, and any transaction that causes money to flow out is a debit. The sum of all credit entries should match the sum of all debit entries (CA+CFA=0).
• Enduring understanding MEA-4: Foreign trade accounting measures the flow of goods, services, and financial capital between countries.