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Open economy: Financial account

The financial account is one of the components of the balance of payments. It shows the net acquisition and disposal of both financial assets and liabilities. As stated in the sixth edition of the Balance of Payments Manual (BPM), by the International Monetary Fund, “The financial account records transactions that involve financial assets and liabilities and that take place between residents and nonresidents”. The table below, taken from the BPM, shows an overview of the financial account.   The financial accounts may correspond to either entries to goods, services,...

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Open economy: Loanable funds

Net capital outflows (NCOs, also called net foreign investment) make reference to the difference between the acquisition of foreign assets by domestic residents and the acquisition of domestic assets by non-residents. Therefore, it has to do with savings and investment (loanable funds) and foreign currency exchange. The relationship between net capital outflows and foreign currency exchange can be easily seen using a model, which analyses the market for loanable funds and the market for foreign currency exchange, in the context of an open economy. The link between these two...

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Open economy: Net capital outflows

Net capital outflows (NCOs, also called net foreign investment) make reference to the difference between the acquisition of foreign assetsby domestic residents and the acquisition of domestic assets by non-residents. Net capital outflows takes two...

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Open economy: IS-LM-BP

The IS-LM-BP model (also known as IS-LM-BoP or Mundell-Fleming model) is an extension of the IS-LM model, which was formulated by the economists Robert Mundell and Marcus Fleming, who made almost simultaneously an analysis of...

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Open economy: IS-LM model

The IS-LM (Investment Savings-Liquidity preference Money supply) model focuses on the equilibrium of the market for goods and services, and the money market. It basically shows the relationship between real output and interest rates. It...

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Open economy: Capital account

The capital account is one of the components of the balance of payments. It mainly reflects net foreign holdings of capital. When a country incurs on a deficit on current account, it needs to be...

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