Practical Research 1 Lesson 9 Scope and delimitation.pptx
The Balance of Payments A2
1. Aquinas College Economics Department
The Balance of Payments
Financial Transactions between
Britain and the World
ECON4
2. Aquinas College Economics Department
Definition
You need to know about the
Current Account
Capital Account
Financial Account
A record of the financial transactions between countries
and trading partners
3. Aquinas College Economics Department
Current Account
It contains the countries net income from trade
If the total imports exceeds the total exports
then the country is running a current account
deficit on the balance of payments
The part of the balance of payments that records trade in
goods e.g. Tangible products and services e.g. Financial
services
4. Aquinas College Economics Department
Trade in Goods
Visible Goods e.g. Tangible goods
Focused on imports – exports
UK consistently runs a deficit here due to the
decline in UK manufacturing – (possible impact
of globalisation?)
5. Aquinas College Economics Department
Trade in Services
Invisible Goods
Financial Services tend to fall under here
The UK runs a surplus here due to the large
service sector in the UK Economy.
The City of London is a good example of this
with large financial institutions
6. Aquinas College Economics Department
Net Income Flows
Interest
Profits
Dividends
All of these will come from UK Assets in other
countries e.g. RBS Branches in Malaysia
Equally foreign countries will take out of the UK
economy like EDF Energy profits go back to
France
7. Aquinas College Economics Department
Current Transfers
Mainly government transfers to international
organisations
European Union
International Monetary Fund
United Nations
World Bank
World Trade Organisation
NATO
8. Aquinas College Economics Department
The Capital Account
A small part of the total Balance of Payments
Includes
Repatriation of Financial Capital
Government Transfers
Up keep of UK Diplomatic Missions
Some Foreign Aid
9. Aquinas College Economics Department
The Financial Account
Records the movement of financial capital into
and out of the UK. Three main components
Net Foreign Direct Investment
Outward FDI: UK companies investing in other
nations
Inward FDI: Foreign companies investing in the UK
Net Portfolio Investment
Other Capital Inflows – ‘hot money’
10. Aquinas College Economics Department
Short Term / Long Term
Short run capital flows are normally classed as
one year long. Arises normally from speculators
through financial institutions
Long term capital flows tend to be more
portfolio investments such as shares or other
financial assets.
11. Aquinas College Economics Department
Advantages and Disadvantages
Advantages Disadvantages
Promotes global economic growth Problems in one countries financial system
can impact on that of another e.g. Sub
Prime Mortgage Crisis
Generates more sources of finance FDI can lead to global dominance by a few
firms
FDI can bring about important Supply Side
reforms
Hot Money flows can destabilise a
currencies value if done in large enough
amounts
Of International Capital Flows
12. Aquinas College Economics Department
AS Level Revision Site (ECON1, ECON2)
• http://www.aquinaseconomicsas.co.uk
A2 Level Revision Site (ECON3, ECON4)
• http://www.aquinaseconomicsa2.co.uk
Aquinas Economics on Twitter
• http://www.twitter.com/aquinaseconomic
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