Balance of Payments - Edexcel Unit 4

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Harry Bindloss
Balance of payments: A set of accounts showing the transactions conducted between
residents of a country and the rest of the world.
Exports: Goods and services produced domestically but sold abroad.
Imports: Goods and services produced abroad but purchased domestically.
Balance of payments: Composition
1. Current account
2. Capital account
3. Financial account
Current Account
The current account is split into four main components.
1. Trade in goods ­ this covers visible trade the export and import of physical products.
Visible exports ­ Visible imports = Balance of (visible) trade
2. Trade in services ­ sometimes known as invisible trade. Trade in services such as
tourism, shipping, banking, insurance and other financial services.
Invisible exports ­ Invisible imports = Balance on invisible trade
3. Income ­ this covers the incomes from profits, dividends and interest receipts from
abroad minus the profits, dividends and interest paid abroad.
4. Current transfers ­ Transfers of money take place when money changes hands
without any necessary economic transaction taking place. For example, governments
may give money to other governments in the form of aid.
Capital Account
The capital account shows transfers of capital, including government investment. This refers
to the purchase and sale of fixed assets, such as land or a major construction project, as
well as non-tangible assets such as patents and trademarks.

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Harry Bindloss
Financial Account
This section looks at the various flows of investment into and out of the UK. There are many
forms that this investment can take; the purchase and sales of companies, investment in
the form of purchase and sale of shares in foreign companies etc.…read more


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