4.6.2—Components of the balance of payments
- Syllabus
- First assessment 2022
- Objective
- 4.6.2
- Level
- HL
Read the components of the current and financial accounts
The current account shows whether exports and income received exceed imports and income paid. The financial account records flows such as direct investment, portfolio investment and reserve assets; the capital account is smaller but still part of the accounting structure.
Classify a transaction by asking what is being exchanged: a good or service, an income payment, a transfer, or ownership of a financial asset. Do not treat every capital inflow as export revenue.
Use the full classification: current account = trade in goods + trade in services + income + current transfers; capital account = capital transfers + transactions in non-produced, non-financial assets; financial account = FDI + portfolio investment + reserve assets + official borrowing. A dividend received from abroad is current-account income, purchase of a foreign company is outward FDI, a patent sale is a non-produced non-financial asset transaction, and a central-bank reserve change belongs to the financial account.