Balance of Payments

Inflow = credits
Outflow = debits

Balance of payment divided:
1. Current Account
2. Capital Account
3. Official Reserves Account

Current Account:
Balance of Trade of Net Exports
             - Exports = credit to balance
              -Imports = debit to balance

Net Foreign Income
Net Transfers (tend to be unilateral)
               -Foreign Aid = debit to current account


Capital Account:
Balance of capital ownership
Includes the purchase of both real and financial assets
Direct investments in the US is a credit to the capital account
Direct investment by US firms/individuals in a foreign country are debits to the capital account
Purchase of foreign financial assets represents a debit to the capital account
Purchase of domestic financial assets by foreigners represents a credit to the capital account.
             
         *Current Account and Capital account should zero each other out.*

Official Reserves

foreign currency holdings of the US Federal Reserve System

Balance of payments surplus = Fed accumulates foreign currency

BOP payments = Fed depletes its reserves of foreign currency