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Finance & Accounting
Pages 4 (1004 words)
Name: Tutor: Course: Date: University: Money and Banking Part 1 The movements in the current accounts for most economies are based primarily on the trade deficits. Current account deficits are usually financed by the net capital inflows. Mostly, the trade deficits are caused by the rise in the current account deficits as well as the booming stock markets.
The deficit is equivalent to the goods imported less the value of the exported goods, and it is given in terms of the currency of the involved country. Measuring the trade deficits is difficult and it involves measuring investment flow for different accounts. These include the financial and the current accounts, which are totalled to get the balance of payments. Current account measures all amounts involved in exporting and importing goods and services, the money transfer between the countries involved, and interests from all the other foreign sources. On the other hand, financial account consists of total changes in ownership at both foreign and domestic level. The net amounts for two accounts are entered in the balance of payments (Agur 2008, p. 67-69). From an economic view, trade deficits characterize poor economies. Most of the countries experiencing trade deficits are involved in consistent borrowing from other countries. Borrowing is not among the viable strategies in businesses. Labour unions consider trade deficits as key contributors to unemployment and it that it undermines the future production (Agur 2008, p. 67-69). The country can run a trade deficit and still maintains the value of its currency through balanced free trade. ...
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