Do you know about current account balance term? . In this entry I’ll share about current account balance.
Do you really know about current account balance? It is different between a country’s savings and its investment. The current account balance definition is sum of the value of imports of goods and services plus net returns on investment abroad, minus the value of exports of goods and services.
The current account balance is one of two major measures of the nature of a country’s foreign trade (the other being the net capital outflow). A current account surplus increases a country’s net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.
In the traditional accounting of balance of payments, the current account equals the change in net foreign assets. A current account deficit implies a paralleled reduction of the net foreign assets.
current account = changes in net foreign assets
What Does Current Account Deficit Mean?
Occurs when a country’s total imports of goods, services and transfers is greater than the country’s total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world.
Current Account Definition
The current account is an important indicator about an economy’s health. It is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers. A positive current account balance indicates that the nation is a net lender to the rest of the world, while a negative current account balance indicates that it is a net borrower from the rest of the world. A current account surplus increases a nation’s net foreign assets by the amount of the surplus, and a current account deficit decreases it by that amount. The current account and the capital account are the two main components of a nation’s balance of payments.