Current account, Managerial Economics

The Current Account

This records all transactions involving the exchange of currently produced goods and services and is subdivided into

i.          Visibles:

A record of all receipts from abroad the export of goods and all expenditures abroad on the import of goods.  When these are compared, this is known as the "balance of  trade" (though it would be properly called the "balance of visible trade").

ii.          Invisibles:

A record of all receipts from abroad in return for services rendered and all expenditure abroad for foreign services.  It also includes receipts of profits and interest earned by investments abroad, and similarly profits and interest paid abroad to foreign owners of capital in the country are included in Expenditure.  The comparison of all the debits (Expenditure abroad) and credits (receipts from abroad) arising from visibles and invisibles is known as the "balance of payments on current account" and is the best indicator of the country's trading position.

If the value of exports exceeds the value of imports the balance of payments is said to be in Trade Surplus.   This is regarded as a favourable position because a persistent trade surplus means the country's foreign exchange reserves are rising and so its ability to pay for its imports and settle its international debts.  Also a trade surplus is regarded as a sign of success in the country's trade with other countries and is, therefore, politically desirable.

On the other hand, if the value of imports exceeds the value of exports, the balance of payments is in trade deficit.  This is an unfavourable position because a persistent balance of payments trade deficit means that the country's foreign exchange reserves are being run down and so is its ability to pay for its imports and settle its international debts. Also a persistent balance of payments trade deficit is regarded as a sign of failure in the country's trade with other countries and is therefore politically undesirable.

Posted Date: 11/30/2012 5:17:57 AM | Location : United States







Related Discussions:- Current account, Assignment Help, Ask Question on Current account, Get Answer, Expert's Help, Current account Discussions

Write discussion on Current account
Your posts are moderated
Related Questions
Consider an economy with three assets and three states. Let be the matrix of asset payoffs at t=1 and p the vector of asset prices at t=0. Assume p 3 =2.  a) Does an ar

Determine the Application of managerial economics Application of managerial economics isn't restricted to profit-seeking business organisations. Tools of managerial economics

Suppose that the price elasticity of demand for cereal is -0.75 and the cross-price elasticity of demand between cereal and the price of milk is -0.9. If the price of milk rises by

In a one-shot game, if you advertise and your rival advertises, you will each earn RM5 million in profits.  If neither of you advertises, your rival will make RM4 million and you w

INSTRUMENTS OF CREDIT CONTROL The central bank employs several instruments to control aggregate credit in the country. While some instruments like the open market operations mi

Q. What is the Nature of Commodity ? The nature of a commodity as well has an effect on the price elasticity of its demand. Commodities can be characterised ascomforts, luxurie

The Economics of Population Population issues became matters of economic concern when it became increasingly apparent that the problem of excess population may be a serious ob

Peanut butter monopolist Calvé supplies peanut butter to Albert Heijn in an isolated village. The supermarket is a monopolist in the village. Demand for peanut butter is given by:


Profit as rent of ability: one of the most widely known theories of profit was propounded by F.A. Walker. According to him profit is the rent of is the difference between the earn