Economics of Balance of Payments

Balance of Payments (BOP)

• A statistical record summarizing all economic transactions between an economy and the rest of the world over a specific time period.

Capital (Economics)

• Durable goods used as productive inputs for further production of goods and services.

Capital (Finance)

• Monetary assets needed for a business to provide goods and services.

Capital Account (KA)

• Records economic transactions with non-residents related to non-produced, non-financial assets (e.g., patents, copyrights, licenses) and capital transfers.

Clearing

• Process of reconciling and confirming payment orders before settlement.

Current Account (CA)

• Records economic transactions with non-residents involving goods, services, income, and current transfers.

Debt (Equity) Financing

• Raising capital by selling debt or equity instruments.

Debt Instrument

• A contract obligating a debtor to repay principal or interest, or both, at a future date(s).

Derivative Instrument

• A contract whose value is derived from the performance of an underlying entity.

Equity Instrument

• A contract representing a residual interest in an entity's assets after deducting liabilities.

Economic Transactions

• Comprises ownership transfers, service provision, and money/investment transfers.

Eurocurrency Market

• Money market for any currency deposited outside its home market.

Exchange

• Process of transmitting payment instructions between parties.

Finance

• Study of economic resource allocation across space and time, considering uncertainty.

Financial Account (FA)

• Records economic transactions with non-residents regarding external financial assets and liabilities.

Financial Globalization

• Integration of the world through cross-border capital flows.

Financial Institution

• Businesses providing intermediary services for financial transactions.

Financial Instrument

• Any contract creating a financial asset for one party and a liability or equity instrument for another.

Financial Intermediary

• Transforms financial transactions by lending to borrowers while raising funds from lenders.

Financial Market

• Markets trading financial instruments (money, bonds, equities, derivatives, foreign exchange).

Financial System

• Consists of financial institutions, markets, and payment systems.

Financial Transaction

• Agreement between parties to exchange money, goods, or services.

Financing

• Process of obtaining money or capital for business activities, purchases, or investments.

Foreign Exchange Instrument

• Contract converting one currency into another.

Foreign Exchange Market

• Over-the-counter market for converting currencies.

Global Capital Market

• Financial market encompassing various countries, trading long-term debt and equity-backed securities.

Long-Term Debt

• Financial obligation with a maturity exceeding one year.

Market Intermediary

• Facilitates financial transactions directly between lenders and borrowers.

Payment System

• Set of payment methods, procedures, rules, and technology for exchanging money.

Settlement

• Release of payment obligations between two or more parties.