Text from vid:
It includes goods, services, income, and current transfers.
Goods include general merchandise, goods used for processing other goods, and non-monetary gold.
Income includes interest and dividend payments both coming into a country from investments in other countries, which adds to the current account total, and investments from foreigners into the country, which subtracts from the current account total.
Current transfers are things like donations, grants, and aid.
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The largest part of the current account is the Balance of trade.
The BOT is the difference between how much a country imports, verses how much it exports.
If a country is exporting more than it is importing, it has a balance of trade surplus
If a country is importing more than it is exporting, is as a balance of trade deficit, or simply a trade deficit.
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When a government, company, or person invests money into a foreign country, for instance if they buy a bond from a foreign government or some stock from a foreign stock market, the interest or dividend they receive is money coming into the country which adds to the currenct account total.
When a foreign government, company, or person from another country invests money into a foreign country, for instance if they buy a bond or some stock, the money that is paid out in interest or dividend payments leaves the country which subtracts from the currenct account total.
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To calculate the current account balance, you take the total amount of money that comes into a country from exporting goods, and add to that the money that comes in from dividend and interest payments from investments in foreign countries, and money that comes in from grants and aid.
Then you take that total and subtract the money that is paid out from importing goods, the interest and dividends paid out to foreigners investing into the country, and the money that is given to foreign countries in the form of grants and aid.
The total is the current account balance.
In other words, it is all the money that comes into a country from trade, income, and grants, minus all the money that goes out of a country from trade, income, and grants.
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Because it is the largest section, usually current account surpluses and deficits come from the Balance of Trade section of the current account.
If a country has a current account surplus, it is exporting more than it is importing.
In other words, the country is providing resources to the rest of the world, and is owed money in return for these resources.
This means the country is a net lender to the rest of the world.
If a country has a current account deficit, it is importing more than it is exporting.
It is using resources from other economies to meet its domestic consumption and investment requirements.
This means the country is a net borrower from the rest of the world.
Traders should pay attention to efforts taken reduce current account deficits, and practically Balance of trade deficits.
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Efforts to reduce BOT deficits usually involve attempts to increase exports, or attempts to reduce imports.
These attempts include import restrictions, quotas, or duties, as well as subsidizing exports.
It may also include attempts to devalue the domestic currency to make exports cheaper and imports more expensive.
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It is also important to know that sometimes current account deficits are not a problem.
For instance, a country could be importing more to increase their own productivity, and eventually increase their own exports.
So a deficit is not necessarily a bad thing.
It is important to understand what is causing a surplus or deficit.
Simply stating that a country has a balance of trade surplus or a balance of trade deficit is not enough; one must study both what caused the surplus or deficit, and what action, if any, is being done about it.
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Looking at a country’s current account can give great insight not just as to the level of trade going in and out of a country, but also which sectors in the country are most effected by this trade. Fundamental traders will benefit greatly by familairizing themselves with the general details from the current account for each of the currencies that they trade. I’ll cover this more in the section on specific chararcteristics for each currency.
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So that’s the currenct account.
In the next section, we’ll cover its counter-part- the capital account, which measure capital flow into and out of a country. See you then.
Music:
Danse Macabre – Low Strings Finale (Theme)
Kevin MacLeod
incompetech.com
Manolo Camp – Hold on a sec
http://opsound.org/
