TheFinancialAccountWhile the current account records short-term flows of funds into andout of the country,the financialaccount records long-term flows:Capitaloutflows:purchasesofassetsoverseasbyAmericansCapital inflows: purchases of American assets by foreignersThese assets might be financial assets, like stocks and bonds-foreignportfolioinvestmentorphysical assets,likefactories-foreign direct investment.The balance on the financial account can be thought of as a measureofnetcapitalflows;oralternatively as itsnegative,netforeigninvestment,whichisthedifferencebetweencapitaloutflowsfromacountryandcapitalinflows2015PearsonEducation,Inc.1
© 2015 Pearson Education, Inc. 11 The Financial Account While the current account records short-term flows of funds into and out of the country, the financial account records long-term flows: Capital outflows: purchases of assets overseas by Americans Capital inflows: purchases of American assets by foreigners These assets might be financial assets, like stocks and bonds— foreign portfolio investment—or physical assets, like factories— foreign direct investment. The balance on the financial account can be thought of as a measure of net capital flows; or alternatively as its negative, net foreign investment, which is the difference between capital outflows from a country and capital inflows
TheCapitalAccountPrior to 1999,the financial account and the capital account wereknown collectively as “the capital account".Since then, the capital account refers only to relatively minortransactions,likemigrants'transfers,or sales and purchases ofnonproduced, nonfinancial assets like intellectual property ornaturalresourcerights.The balance on the capital account is relatively small-s7 billion in2012—so wewill ignore it.@2015PearsonEducation,Inc.12
© 2015 Pearson Education, Inc. 12 The Capital Account Prior to 1999, the financial account and the capital account were known collectively as “the capital account”. Since then, the capital account refers only to relatively minor transactions, like migrants’ transfers, or sales and purchases of nonproduced, nonfinancial assets like intellectual property or natural resource rights. • The balance on the capital account is relatively small—$7 billion in 2012—so we will ignore it
TheForeignExchangeMarketandExchangeRates18.2LEARNINGOBJECTIVEExplainhowexchangerates aredeterminedandhowchangesin exchangeratesaffectthepricesofimportsandexports.13@2015PearsonEducation,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 13 The Foreign Exchange Market and Exchange Rates 18.2 Explain how exchange rates are determined and how changes in exchange rates affect the prices of imports and exports