Balance of Payments Intro for Base Knowledge/Understanding

Instructions:Work their way through this list of account categories. For each one, identify an appropriate example of a credit or debit in that category. First use either theWikipedia article onBalance of Payments (https://en.wikipedia.org/wiki/Balance_of_payments) to complete part 1 of the activity.

Part 1:Define each of the following:

1. The Current Account:

a. Current account goods balance:

b. Current account services balance

c. Current account income balance

d. Current account "transfers"

2. Capital Account:

3.Financial Account:

a. Financial account direct investment

b. Financial account portfolio investment

c. Financial account other investment

d. Financial account reserve assets

Part 2:Consider examples of transactions in each of the categories in the current and financial accounts that you defined above. UsingItaly as the "home nation", describe one transaction in each of the accounts that would count as a "credit" (results in an inflow of money in nation's BoP accounts) and one transaction that would count as a "debit" (results in an outflow of money in the nation's BoP accounts).

Current account:

1. Goods balance:

a. Credit:

b. Debit:

2. Services:

a. Credit:

b. Debit:

3. Income (remittances):

a. Credit:

b. Debit:

4. Current account "transfers":

a. Credit:

b. Debit:

Capital account:Measures the transfer of capital or fixed assets between the government or firms in a country and all other countries.

Capital Transfers:

Credits :

Debits:

Financial account:Measures net change in foreign ownership of domestic assets and domestic ownership of foreign assets.

Direct Investment/Physical Assets:

Credits:

Debits:

Portfolio/Financial Assets:

Credits:

Debits:

Research:Now go tothe CIA World Fact book for Italy (https://www.cia.gov/the-world-factbook/countries/italy/) and determine...

Italy's current account balance:

The value of Italy's commodity exports:

The value of commodity imports into Italy:

Explain why Italy's current account balance is not equal to the its commodity export revenues minus it expenditures on commodity imports.