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EconomicsModule 7 of 8

Capital Flows and the FX Market

5

Concepts

1

Formulas

1

Decisions

2

Quiz Questions

Key Concepts

5 concepts covered in this module.

Balance of Payments

Current account (trade, income, transfers) + Capital account + Financial account = 0. CA deficit = net capital inflow.

Current Account

Goods trade balance + services + primary income (investment) + secondary income (transfers). Deficit = spending > income.

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Formulas

1 essential formulas for this module.

Balance of Payments Identity

Current Account + Capital Account + Financial Account = 0

Where: When one account is in deficit, another must be in surplus

Decision Frameworks

1 decision frameworks to guide your analysis.

Impact of current account deficit?

  • Currency depreciation pressure (more demand for foreign currency)
  • Must be financed by capital inflows (foreign investment)

Mind Map

Visual overview of how concepts connect in this module.

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Flashcard

Balance of Payments

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Answer
Current account (trade, income, transfers) + Capital account + Financial account = 0. CA deficit = net capital inflow.
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