VIEWS: 15 PAGES: 2 POSTED ON: 1/1/2012
Identification of Credit and Debit Transactions in BOP Accounts Current Account Credit (+) Debit (-) Goods & Services exports Imports Investment income Received from abroad Paid to foreigners (interest, dividends, etc.) Unilateral transfers Received from abroad Paid to foreigners (foreign aid, pension, etc.) Financial Account Credit (+) Debit (-) U.S. assets abroad U.S. sells or decreases U.S. purchases or (cash, bank deposits, its assets abroad increases assets abroad stocks, bonds, factories, (consider as export of (consider as import of businesses, etc.) assets) assets) Foreigners’ assets in U.S. Foreigners buy or Foreigners sell or (cash, bank deposits, increase assets in U.S. decrease their assets stocks, bonds, factories, (consider as export of held in U.S. (consider as businesses, etc.) assets) import of assets) Capital Account Credit (+) Debit (-) Debt forgiveness outflow of (enters as debit in capital account and capital from as credit in financial account as claim U.S. on indebted country decreases) Non-produced or non-financial capital inflow or Outflow or (e.g. migrants bring title to personal acquisition of disposal of assets with them, transfer of title to capital capital real estate, embassy, military bases, etc.) or intangible assets (e.g. trademarks and copyrights) Some examples 1. An American citizen purchases a phone answering machine from Korea. This is a current account debit for U.S. The American citizen pays for the machine by writing a check. If the Korean seller deposits the check in its account in an American bank, it enters as a credit in U.S. financial account. Instead, suppose the American pays with cash (dollar bills), not check. The Korean company deposits the cash in its bank account in New York; then too it becomes a credit in U.S. financial account. If the Korean company, instead of depositing the cash in an American bank, deposits the cash in a Korean bank, in which account it ends up being credited depends on how this money is used. Suppose, the Korean bank lends this money to a Korean importer to import goods from U.S., it then enters as U.S. current account credit. On the other hand, if the Korean importer imports a financial asset from U.S., it enters as a financial account credit. 2. If a Canadian citizen buys shares in the Mexican stock market (debit in Canadian financial account) and pays for her shares by writing a check drawn on her Canadian bank (credit in Canadian financial account). Instead, if she pays for her shares by writing a check drawn on a Mexican bank, then it does not enter the financial account since it is a change of one foreign asset for another in the same country. 3. In the above example, if the Canadian citizen pays for her newly acquired Mexican shares by writing a check drawn on her account in a German bank, it enters as a credit in Canadian financial account because the Canadian claims on German assets decrease.