Difference Between Current Account And Capital Account Pdf

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The Balance of Payments Bop records the transactions in goods, services and assets between residents of a country with the rest of the world for a specified time period typically a year. Capital account of BoP records public and private investment, and lending activities. It is the net change in foreign ownership of domestic assets.

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Lesson summary: The balance of payments

It is further decomposed into four sub-accounts. It mainly depicts the foreign investment in domestic entities and domestic investment made in foreign entities. Globalization of world economies has helped countries widen their trade, investments, and Risk. A balance of payments BOP can be typically summarized as a record of economic transactions of any country with the rest of the world for a particular period of time. On the other hand, a country that imports more than it exports is said to be in deficit. While the Current account measures the Inflow of goods and services in an economy, on the other hand, Capital account gauges the inflow and outflow of capital in the economy.

Current vs. Capital Accounts: What's the Difference?

The current account and capital account comprise the two elements of the balance of payments in international trade. Whenever an economic actor individual, business or government in one country trades with an economic actor in a different country, the transaction is recorded in the balance of payments. The current account tracks actual transactions, such as import and export goods. The capital account tracks the net balance of international investments — in other words, it keeps track of the flow of money between a nation and its foreign partners. Like all other forms of financial accounting , the balance of payments always has the same value of debits and credits. A country that has a current accounts deficit necessarily has a capital accounts surplus and vice versa.

Current Account vs Capital Account

Current account is the financial account of the economy or any individual entity which shows results of various revenue income and expenditure and calculates revenue profits while capital account indicates various capital income and expenditure like purchase and sale of fixed asset, capital repairs, sale of investments etc. If you want to understand the detailed account of the balance of payments, it is important that you understand both this type of account. Since no country alone is sufficient to provide for itself, most countries in the world import goods from other countries to meet the need of the countrymen and women. The balance of payments means the balance between exports and imports of a country. If a country exports more than it imports, then it would be a balance of payment surplus.

Distinguish between current account and capital account of BOP account.

Difference Between Current Account and Capital Account

The balance of payment is the record of dealings in goods, services and assets, between the citizens of the nation and the rest of the world. It is divided into two parts, i. Current Account and Capital Account. Current Account is an account showing the trade of merchandise, whereas the Capital Account gives place to all capital transactions. While current account is used to keep a track on the movement of money in and out the economy, during a particular period. The capital account, on the other hand, represents the flow of capital in the economy. It is quite troublesome to understand what matters are considered in the former and what are discussed in the latter.

A current account is in balance when the country's residents have enough to fund all purchases in the country. Residents include the people, businesses, and government. Funds include income and savings. The goal for most countries is to accumulate money by exporting more goods and services than they import. It means a country will take in more earnings than it spends. The first is earned on foreign assets owned by a nation's residents and businesses. That includes interest and dividends earned on investments held overseas.

Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. DOI: Causality from the capital account KA to the current account CA of the balance of payments indicates disruption from capital flows while the reverse can indicate smooth financing of the CA that allows investment to exceed domestic savings. View on SAGE.

Content: Current Account Vs Capital Account

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