-A statement of a country’s trade and financial transaction with the rest of the world over a particular period of time, usually a year

-Current Account

-Capital Account (LT term capital inflow)

-Financial Account (inflow of hot money/ equity transaction)

-The Balancing Item

-The Overall Balance

-Monetary transfer for exports and imports of goods and services, income flows and net transfers in and out of the country.

-It comprises of visible balance (BOT), invisible balance (services), income balance(remittance of profit and dividends), transfer balance (remittance)

-All inflows and outflows of funds due to financial activities like acquisition and disposal of fixed assets, shares, government grants for overseas project, etc

-Records investment overseas by local residents and the inward flow of investment funds from foreign residents. International flows of investment funds can be short term or long term.

-Short term capital flows is bank deposits (affected by interest rate)

-Long term capital flows include the holdings of securities or bonds by local or foreign residents

-The balancing item is a statistical item to compensate for the errors and omissions made in recording the value of the country’s international transactions.

-The sum of the current account balance, capital account balance, financial account balance and the balancing item

-An accommodating account that shows how the monetary authorities have dealt with the net money flow in order to reflect that the balance of payments always balances.

-It consists of Deposits and Withdrawals in IMF, Gold Reserve and Foreign Currency Reserves

-Surplus in BOP – inflow of money will be greater than the outflow of money – need to transfer the money into the official financing account – increase in demand for local dollar and decrease in supply of local dollar – Appreciation

-Impact of surplus BOP and appreciation will lead to negative effect like asset-based inflation and loss of export competitiveness as price of export will be higher due to appreciation but currency is stable and this will promote Singapore as a financial hub

-Deficit in BOP – inflow of money will be lesser than outflow of money – need to borrow from the IMF or withdrawal from the Gold Reserve or Foreign Currency Reserve – decrease demand for local dollar and increase in supply of local dollar- Depreciation

-Impact of deficit BOP and depreciation will contribute to imported inflation and raise the value of foreign debts but the price of exported goods will be lowered, raising export competitiveness.

-The effect of depreciation of ER to correct for a BOP deficit.

Inflow of money will be lesser than outflow of money

Inflow of money will be greater than the outflow of money

-Relatively High Domestic Inflation

-Relatively High Economic Growth Rate

-Overvalued Domestic Currency

-Loss in Comparative Advantage (inefficiency of local industries/change in global -pattern of production)

-Large increase in imports

-Low domestic interest rates

-Poor expectations of business profits

-Undervalued domestic currency

-High levels of domestic protection

-In the short-term, temporary and planned balance of payments disequilibrium does not pose a serious problem to an economy. BOP deficit may be necessary to promote economic growth, which will induce import of capital goods and resources – induce production and employment

-In the long-term, persistent and unplanned disequilibrium is a serious problem and indicates a fundamental economic problem in the economy (may induce import of luxury goods –BOT deficit)

-A long term and persistent BOP deficit will the exchange rate stability which will undermine the trading activities and flow of FDI

-If the cause of the BOP deficit is due to BOT deficit which will indicate a fall in production of exported goods and service, the impact on unemployment will be a serious problem for the economy.

-The growth of expenditure on goods and services may indicate a higher level of standard of living but it will also mean that local industries and losing out.

-A short and temporary BOP deficit will not prove serious problem as it will temporarily lower exchange rate to enhance competitiveness

-If the BOP deficit is due to outflow of local FDI into foreign country, the growth of infrastructural business will be beneficial to the large economy in the long run. Furthermore, if the deficit is due to import of resources and capital equipment, it will be beneficial for the growth of the economy.

-Undervaluation refers to the condition where the exchange rate pegged by the government is below the market-determined exchange rate.

-Overvaluation refers to the condition where the exchange rate pegged by the government is above the market-determined exchange rate.

Pedx + Pedm >1

-Services

-Remittance of profit and dividends

-Balance of trade

-Inflation rate – affect cost of production – affect Px and Pm

-relative income level

-taste and preference of the products

-change in exchange rate

-comparative advantage – affected by the change in cost of production

-structural changes in the economy – economic development

-Interest rate- determined the return on saving

-change in the exchange rate (encouraging speculative activities)

-return on business

-taxation policy

-market demand- market sentiment

-efficiency of the industries – return on investment

-Inflationary impact on the economy

-Fall in national income and level of employment due to lower FDI and export demand

-Decreases in foreign reserves

-Affect the confidence of the investors

-Fall in exchange rate of a country’s currency

-Deterioration in terms of trade (TOT)

-Increase in national income and level of employment due to higher level of FDI and surplus BOT

-Increase in foreign reserves

-Reduces the competitiveness of the export demand and in the attraction

-Worsen the trading and capital flow condition of the trading partners.

-Rise in exchange rate of a country’s currency

-Improvement in terms of trade (TOT)

-Xd/Md/FDI/flow of fund – affect BOP equilibrium

-AD (Real GDP)/Potential Growth – Sustainable Economic Growth

-Production/Employment – low unemployment

-COL/COP/SOL – Price stability

-Distribution of Income and Wealth

-Optimization of resource allocation

-Inflationary impact on the economy

-Fall in national income and level of employment due to lower FDI and export demand

-Decreases in foreign reserves

-Affect the confidence of the investors

-Increase in national income and level of employment due to higher level of FDI and surplus BOT

-Increase in foreign reserves

-Reduces the competitiveness of the export demand and in the attraction

-Worsen the trading and capital flow condition of the trading partners.

-Fall in exchange rate of a country’s currency

-Deterioration in terms of trade (TOT)

-Rise in exchange rate of a country’s currency

-Improvement in terms of trade (TOT)

-The sum of the current account balance, capital account balance, financial account balance and the balancing item

-From the current account, the level of production of goods services can be noted as seen level of export of goods and services. We can also observe that the industries are mainly producing high valued production and there is the concentration of tertiary services.

-The value of the income balance also reveals that the economy has a concentration of FDI and the increase in the flow of capital account (Long run) will also suggest that Singapore is competition enough to attract FDI. High depend of FDI and the presence of net export will substantiate that the economy is experiencing economic growth as the production capacity is increasing.

-The import expenditure will indicate the level of the resource capacity the country can posses as Singapore relies greatly on import for production. It also indicates the level of standard of living as the rise in the import of services will mean that there is increase in consumption of services from abroad in the areas of tourism

-High volume of deficit in the transfer balance reflects the high degree of dependency on foreign supply of labour.

-For financial account, the flow of the transfer will affect the banking and finance industry which is one of critical industry in the economy and the indicator of the flow of hot money which will affect our short term exchange rate. The change in the exchange rate will affect the trading prices and of cost FDI which is affects the AD that influences production and national income.

-The official financing reserve will reflect the level of stability of the external equilibrium as the amount and the distribution of reserve will affect the country’s ability to stabilize exchange rate.

-It refers to money held by foreign investors that is liable to switch to another country’s currency within a short notice, so as to obtain highest returns.

-It refers to the movement of capital in or out of a country due to certain factors like market and investor confidence.

-It refers to the transfer of money from one country to another.

-It refers to the buying or selling of a financial asset, so as to reap quick profit.