VII.+Open+Economy+-+International+Trade+and+Finance

The __balance of payments accounts__ is a record of all international transactions that are undertaken between residents of one country and residents of other countries during some period of time. These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. The BOP summarizes international transactions for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.
 * VII. Open Economy: International Trade and Finance**
 * __Balance of Payments Accounts __ **





The __balance of trade__ (net exports) is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports. The trade balance is identical to the difference between a country's output and its domestic demand or the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stock, nor does it factor in the concept of importing goods to produce for the domestic market. It is also part of the __current account.__
 * __Balance of Trade __ **

__Trade Surplus __= when there is more exports than there are imports __Trade Deficit __= a trade gap, or when there are more imports than exports

The __current account__ is one of the two primary components of the balance of payments, the other being the capital account. The current account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). A __current account__ __surplus__ increases a country's net foreign assets by the corresponding amount, and a __current account deficit__ does the reverse. The Current Account includes: =current account= changes in net foreign assets=
 * __Current Account __ **
 * **Merchandise trade**, which consists of all raw materials and manufactured goods bought, sold, or given away.
 * **Services**:
 * travel and tourism,
 * labor,
 * transportation,
 * engineering,
 * business services, such as law, management consulting, accounting, and fees from patents and copyrights on software, books, and movies.
 * **Income receipts** include income derived from ownership of assets, such as stock dividends and bond interest.
 * **Unilateral transfers** are one-way transfers of assets, such as worker remittances from abroad and direct foreign aid. Aid and gifts count as a debit to the capital account of the donor nation.

The __capital account__ (also known as financial account) is one of two primary components of the balance of payments, the other being the current account. Whereas the current account reflects a nation's net income, the capital account reflects net change in national ownership of assets.
 * __Capital Account __ **

The Capital Account includes:


 * **Capital transfers**:
 * debt forgiveness,
 * migrants’ transfers (goods and financial assets accompanying migrants as they leave or enter the country) ,
 * title transfer of fixed assets,
 * transfer of funds linked to the sale or purchase of fixed assets,
 * gift and inheritance taxes,
 * death duties,
 * uninsured damage to fixed assets,
 * legacies.
 * **Acquisition and disposal of** r eal or intangible assets :
 * transactions of real assets, such as the rights to natural resources,
 * intangible assets, such as patents, copyrights, trademarks, franchises, and leases.

The Financial Account
The financial account, a subdivision of the capital account, consists of financial instruments or investments, including: The __foreign exchange market__ is a global, worldwide decentralized over-the-counter financial market for trading currencies. The foreign exchange market determines the relative values of different currencies. Its primary purpose is to assist international trade and investment, by allowing businesses to convert one currency to another currency.
 * **U.S.-owned assets abroad**:
 * official reserve assets,
 * government assets,
 * private assets, including gold, foreign currencies, foreign securities, reserve position in the International Monetary Fund, U.S. credits and other long-term assets,
 * direct foreign investment,
 * U.S. claims reported by U.S. banks.
 * **Foreign-owned assets in the United States**:
 * foreign official assets and other foreign assets in the United States, including U.S. government, agency, and corporate securities, direct investment, U.S. currency, and U.S. liabilities reported by U.S. banks.
 * __Foreign Exchange Market __**

__<span style="font-family: 'Times New Roman','serif'; font-size: 21px; line-height: 115%;">Demand and Supply of Foreign Exchange __<span style="font-family: 'Times New Roman','serif'; font-size: 21px; line-height: 115%;"> influences the determination of exchange rates and vice versa. The demand for foreign exchange is inversely proportional to the rise of exchange rate. As the exchange rate goes up the demand for foreign exchange declines. The quantity of foreign exchange demanded falls. The supply of foreign exchange shifts depending on demand and not on the exchange rate. If the supply aspect of transaction is plotted on a graph it will be vertical since the supply of foreign currency deposits available at any time is fixed.
 * __<span style="font-family: 'Times New Roman','serif'; font-size: 24px;">Demand for and Supply of Foreign Exchange __**



<span style="font-family: 'Times New Roman','serif'; font-size: 21px;">In finance, an __exchange rate__ between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency. <span style="font-family: 'Times New Roman','serif'; font-size: 21px;">The __spot exchange rate__ refers to the current exchange rate. The __forward exchange rate__ refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date. <span style="font-family: 'Times New Roman','serif'; font-size: 21px;">An inter-bank exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (US$) means that ¥91 will be exchanged for each US$1 or that US$1 will be exchanged for each ¥91.
 * __<span style="font-family: 'Times New Roman','serif'; font-size: 24px;">Exchange Rate Determination __**
 * <span style="font-family: 'Times New Roman','serif'; font-size: 21px;">Example **

__<span style="font-family: 'Times New Roman','serif'; font-size: 21px;">Appreciation __<span style="font-family: 'Times New Roman','serif'; font-size: 21px;"> of an asset is an increase in its value. Applied to a currency, appreciation is a rise of its value in a floating exchange rate. In times of __high inflation__, appreciation of assets will be common to all balance sheet assets. In any viable modern economy, such property tends to increase in value over the years. __<span style="font-family: 'Times New Roman','serif'; font-size: 21px;">Depreciation __<span style="font-family: 'Times New Roman','serif'; font-size: 21px;">of an asset is a decrease in its value. Depreciation is just the inverse of Appreciation in terms of the value of currency.
 * __<span style="font-family: 'Times New Roman','serif'; font-size: 24px;">Currency Appreciation and Depreciation __**
 * __<span style="font-family: 'Times New Roman','serif'; font-size: 21px;">Appreciation __**
 * __<span style="font-family: 'Times New Roman','serif'; font-size: 21px;">Depreciation __**

<span style="font-family: 'Times New Roman','serif'; font-size: 21px;">The __Net Exports__ (Balance of Trade) is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports.
 * __<span style="font-family: 'Times New Roman','serif'; font-size: 24px;">Net Exports and Capital Flows __**



<span style="font-family: 'Times New Roman','serif'; font-size: 21px;">A __financial market__ is a mechanism that allows people to buy and sell/trade financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other property of a good or a commodity of value at low transaction costs and at prices that reflect the efficiency of the market.
 * __<span style="font-family: 'Times New Roman','serif'; font-size: 24px;">Links to Financial and Goods Markets __**

<span style="font-family: 'Times New Roman','serif'; font-size: 21px;">In finance, financial markets facilitate: =[|Binary Options] Text Loans=
 * <span style="font-family: 'Times New Roman','serif'; font-size: 21px;">The raising of capital (in the capital markets)
 * <span style="font-family: 'Times New Roman','serif'; font-size: 21px;">The transfer of risk (in the derivatives markets)
 * <span style="font-family: 'Times New Roman','serif'; font-size: 21px;">The transfer of liquidity (in the money markets)
 * <span style="font-family: 'Times New Roman','serif'; font-size: 21px;">International trade (in the currency markets)