Sabtu, 09 Februari 2008

greenhouse effect

The greenhouse effect is the rise in temperature that the Earth experiences because certain gases in the atmosphere (water vapor, carbon dioxide, nitrous oxide, and methane, for example) trap energy from the sun. Without these gases, heat would escape back into space and Earth’s average temperature would be about 60ºF colder. Because of how they warm our world, these gases are referred to as greenhouse gases.
Have you ever seen a greenhouse? Most greenhouses look like a small glass house. Greenhouses are used to grow plants, especially in the winter. Greenhouses work by trapping heat from the sun. The glass panels of the greenhouse let in light but keep heat from escaping. This causes the greenhouse to heat up, much like the inside of a car parked in sunlight, and keeps the plants warm enough to live in the winter.
 The Earth’s atmosphere is all around us. It is the air that we breathe. Greenhouse gases in the atmosphere behave much like the glass panes in a greenhouse. Sunlight enters the Earth's atmosphere, passing through the blanket of greenhouse gases. As it reaches the Earth's surface, land, water, and biosphere absorb the sunlight’s energy. Once absorbed, this energy is sent back into the atmosphere. Some of the energy passes back into space, but much of it remains trapped in the atmosphere by the greenhouse gases, causing our world to heat up.The greenhouse effect is important. Without the greenhouse effect, the Earth would not be warm enough for humans to live. But if the greenhouse effect becomes stronger, it could make the Earth warmer than usual. Even a little extra warming may cause problems for humans, plants, and animals.

global warming

Greenhouse Gas Emissions


Greenhouse Gas Overview

Gases that trap heat in the atmosphere are often called greenhouse gases. This section of the EPA Climate Change Site provides information and data on emissions of greenhouse gases to Earth’s atmosphere, and also the removal of greenhouse gases from the atmosphere. For more information on the science of climate change, please visit EPA's climate change science home page.

Some greenhouse gases such as carbon dioxide occur naturally and are emitted to the atmosphere through natural processes and human activities. Other greenhouse gases (e.g., fluorinated gases) are created and emitted solely through human activities. The principal greenhouse gases that enter the atmosphere because of human activities are:

  • Carbon Dioxide (CO2): Carbon dioxide enters the atmosphere through the burning of fossil fuels (oil, natural gas, and coal), solid waste, trees and wood products, and also as a result of other chemical reactions (e.g., manufacture of cement). Carbon dioxide is also removed from the atmosphere (or “sequestered”) when it is absorbed by plants as part of the biological carbon cycle.
  • Methane (CH4): Methane is emitted during the production and transport of coal, natural gas, and oil. Methane emissions also result from livestock and other agricultural practices and by the decay of organic waste in municipal solid waste landfills.
  • Nitrous Oxide (N2O): Nitrous oxide is emitted during agricultural and industrial activities, as well as during combustion of fossil fuels and solid waste.
  • Fluorinated Gases: Hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride are synthetic, powerful greenhouse gases that are emitted from a variety of industrial processes. Fluorinated gases are sometimes used as substitutes for ozone-depleting substances (i.e., CFCs, HCFCs, and halons). These gases are typically emitted in smaller quantities, but because they are potent greenhouse gases, they are sometimes referred to as High Global Warming Potential gases (“High GWP gases”).
Greenhouse Gas Inventories

A greenhouse gas inventory is an accounting of the amount of greenhouse gases emitted to or removed from the atmosphere over a specific period of time (e.g., one year). A greenhouse gas inventory also provides information on the activities that cause emissions and removals, as well as background on the methods used to make the calculations. Policy makers use greenhouse gas inventories to track emission trends, develop strategies and policies and assess progress. Scientists use greenhouse gas inventories as inputs to atmospheric and economic models.

To track the national trend in emissions and removals since 1990, EPA develops the official U.S. greenhouse gas inventory each year. The national greenhouse gas inventory is submitted to the United Nations in accordance with the Framework Convention on Climate Change Exit EPA Disclaimer.

In addition to the U.S. inventory, greenhouse gas emissions can be tracked at the global, state and local levels as well as by companies and individuals:

  • Many other countries also develop national greenhouse gas inventories, which can be compiled into global inventories. EPA works with developing and transition countries to improve the accuracy and sustainability of their greenhouse gas inventories. EPA has developed Greenhouse Gas Inventory Capacity Building templates and software tools targeting key sources, emissions factors, good practices, institutional infrastructure and use of the latest IPCC guidelines on greenhouse gas inventories.
  • Many states prepare greenhouse gas inventories, and EPA provides guidance and tools to assist them in their efforts.
  • Corporate greenhouse gas inventories provide information on the emissions associated with the operations of a company.
  • Individuals produce greenhouse gas emissions through everyday activities such as driving and using air conditioning or heating. EPA provides an online calculator for estimating personal emissions.

The Intergovernmental Panel on Climate Change (IPCC) Exit EPA Disclaimer publishes internationally accepted inventory methodologies that serve as a basis for all greenhouse gas inventories, ensuring that they are comparable and understandable. The 2006 IPCC Guidelines were completed and accepted by the IPCC in May 2006.

Emission Trends & Projections

Estimates of future emissions and removals depend in part on assumptions about changes in underlying human activities. For example, the demand for fossil fuels such as gasoline and coal is expected to increase greatly with the predicted growth of the U.S. and global economies.

The Fourth U.S. Climate Action Report concluded, in assessing current trends, thatcarbon dioxide emissions increased by 20 percent from 1990-2004, while methane and nitrous oxide emissions decreased by 10 percent and 2 percent, respectively. The declines in methane emissions are due to a variety of technological, policy, and agricultural changes, such as increased capture of methane from landfills for energy, reduced emissions from natural gas systems, and declining cattle populations. At least some of the decline in nitrous oxide emissions is due to improved emissions control technologies in cars, trucks, and other mobile sources. (Fourth U.S.Climate Action Report, 2007)

Many, but not all, human sources of greenhouse gas emissions are expected to rise in the future. This growth may be reduced by ongoing efforts to increase the use of newer, cleaner technologies and other measures. Additionally, our everyday choices about such things as commuting, housing, electricity use and recycling can influence the amount of greenhouse gases being emitted.

Kamis, 03 Januari 2008

Equity loan

Equity loan

An equity loan is a mortgage placed on real estate in exchange for cash to the borrower. For example, if a person owns a home worth $100,000, but does not currently have a lien on it, they may take an equity loan at 80% loan to value (LTV) or $80,000 in cash in exchange for a lien on title placed by the lender of the equity loan.

Many lending institutions require the borrower to repay only an interest component of the loan each month (calculated daily, and compounded to the loan once each month). The borrower can apply any surplus funds to the outstanding loan principal at any time, reducing the amount of interest calculated from that day onwards. Some loan products also allow the possibility to redraw cash up to the original LTV, potentially perpetuating the life of the loan beyond the original loan term.

The rate of interest applied to equity loans is much lower than that applied to unsecured loans, such as credit card debt.

Debt Consolidation Loan - Debt Consolidation Program

Debt Consolidation Loan - Debt Consolidation Program



Need of a Debt Consolidation Loan

Most all of us have bills. We have rent or mortgage, electric, gas, water and other utilities. But most of us also have student loans, credit card bills and more. Debt is an easy thing to acquire and a harder thing to get rid of.

It’s very easy to use those charge cards you were saving “for an emergency” and very quickly it can spiral out of control. If you also have student loans, car loans or other types of bills, it all just adds up. If you need to consolidate debt, you are not alone. Those late fees and interest charges add up and it can be very overwhelming.

How a Debt Consolidation Loan can help you?

A debt consolidation loan basically takes all of your bills, such as those from credit card companies, household bills etc. Then, they are all consolidated into one monthly payment which is lower than the sum of payments on individual debts. Then, as long as you are able to make this one monthly payment, your credit will remain in good standing and you will be working toward the goal to get your bills paid off.



Looking For A Debt Consolidation Loan ? Apply Now !


Debt Consolidation Program - An option to Avoid Bankruptcy

Many people feel pushed up against a wall and may think their only option is bankruptcy and they later regret the effect it has on their credit. Debt consolidation can save you from this. A debt consolidation program can help you manage your money troubles and it’s typically as easy as a simple phone call.

A debt consolidation program will help you pay off all your debts and stop the creditors from harassing you. In addition, you will also have the benefit of fewer interest and late charges from each individual creditor since they will all be combined. Free debt consolidation information can be obtained from the internet and from companies that provide debt consolidation loans.

How we can help you Consolidate Debt?

Apart from getting a solution to your debt and credit problems, you can also seek budget and financial counseling to help you manage better in the future. There are debt consolidation companies designed to help you ease your financial worries. So, if you want to stop over complicating life by having to make multiple payments each month, why not unravel the financial confusion and apply now for a debt consolidation loan.

secured loan

Find a personal or secured loan to suit you on uSwitch

A guide to the right secured loan

Before uSwitch, finding your way through the secured loans maze was full of pitfalls and dead ends. Now it couldn’t be simpler, so let us be your guide.

Secured loans guide

What are secured loans?

A secured loan is a loan where you will be required to use your property as security against the loan, so the lender is able to balance the risk of lending to you. The amount that can be borrowed differs from lender to lender and your individual circumstances. The amount that can be borrowed, the term available and the Annual Percentage Rate (APR) will depend on:

  • the value of your property
  • your ability to repay the loan
  • your personal circumstances

You need to think very carefully about how you manage a secured loan. If you default on the loan you risk losing your home.

The Best Secured Loans from uSwitch

£

Provider Loan Details Monthly Repayments Typical APR Apply
Moneyback Bank Moneyback Bank Personal Loan £197.44 7.1% APR Apply
Bank of Scotland BOS Personal Loan (Semi-exclusive) £198.33 7.3% APR Apply
Halifax Halifax Internet Personal Loan (Semi-exclusive) £198.33 7.3% APR Apply
Alliance & Leicester Alliance & Leicester Personal Loan (Exclusive) £198.77 7.4% APR Apply
Northern Rock Northern Rock Personal Loan £223.43 12.9% APR Apply

Loans do not include Payment Protection Insurance (PPI) and assume you have no adverse credit. Loans are those you can apply for online via uSwitch.com.

Who should choose a secured loan?

Secured loans allow you to borrow more and repay over a longer period than a personal loan – up to 25 years. They can normally be used for almost any purpose and as the lender has the benefit of security they can be offered to people who may be excluded from other loans. Borrowers who are self-employed, have recently changed jobs or have previous credit problems will be considered for a secured loan. They are also useful for borrowing larger sums or where the applicant requires a longer repayment period

How can I find the best secured loan?

Finding the best secured loan for your situation can be complicated as there are many factors for the lender to take into account. With so many providers offering secured loans, trying to compare them all yourself could take forever. Luckily uSwitch.com can do all the work for you with our secured loans comparison service.

All you need to do is tell us a few details about the secured loan you’re looking for and your personal circumstances. It’s free, impartial and any information you give us will remain confidential and secure.

How can I be sure it’s the best secured loan for me?

As well as comparing the available secured loans, uSwitch.com refers you to a broker where appropriate to ensure you get the best possible deal. Some lenders prefer to only work through brokers. It is for this reason we have chosen to work with an approved broker as they will have access to a wider range of lenders and will use their expertise to match a secured loan to your circumstances.

Find a secured loan today

So now that you know all about secured loans, why delay? Let us help you find the best secured loan for you right now. Just go to our secured loans calculator.

student loan consolidation

Student Loan Consolidation

Student Loan Consolidation is a practical repayment tool that bundles all your federal school loans into one loan, significantly reducing your monthly payment. To calculate your monthly savings, try our student loan consolidation calculator.

Federal Loan Consolidation

Learn about federal student loan consolidation

Consolidating your federal student loans can reduce your monthly payment up to 53% and simplify your finances by making one payment per month.

Private Loan Consolidation

Learn about private student loan consolidation

Our private student loan consolidation program offers interest rate reductions for on-time and automatic payments and there are no pre-payment penalties.

How much can you save each month?

If you consolidate student loans right now, you could save hundreds of dollars a month. Here's a quick chart showing how much you could save on your monthly payments:

Loan Amount Currently Paying: After Consolidation: Monthly Savings: Annual Savings:
$20,000.00$228.32$151.48$76.84$922.08
$30,000.00$342.48$227.22$115.26$1,383.12
$40,000.00$456.64$275.10$181.53$2,178.42
$50,000.00$570.80$343.88$226.92$2,723.02
$75,000.00$856.20$483.96$372.24$4,466.85
$100,000.00$1,141.59$645.28$496.32$5,955.80
Click Here to Consolidate Student Loans!

Savings shown are based on the current Stafford Loan interest rate of 6.8%; borrowers in grace periods, with loans other than Stafford Loans (such as PLUS or Perkins loans), or with Stafford Loans older than July 1, 1998 will have different interest rates.

Limitations of Comparative Advantage

Limitations of the Theory of Comparative Advantage

  1. Transport costs may outweigh any comparative advantage
  2. Increased specialisation may lead to diseconomies of scale
  3. Governments may restrict trade
  4. Comparative advantage measures static advantage but not any dynamic advantage for example in the future India could become good at producing books if it made the necessary investment

Terms Of Trade

This measures the price index of exports divided by the price index of imports. It is expressed as a percentage so in the base year it will be 100 .

For trade to be beneficial the terms of trade have to lie in between the different opportunity cost ratios

Comparative Advantage

Theory of Comparative Advantage

Comparative Advantage:

A country has a comparative advantage over another in the production of a good if it can produce it at a lower opportunity cost: i.e. it has to forego less of other goods in order to produce it.

OUTPUT

Textiles

Books

UK

1

4

India

2

3

Total

3

7




  • For the UK to produce 1 unit of textiles it has an opportunity cost of 4 books.
  • However for India to produce 1 unit of textiles it has an opportunity cost of
  • 1.5 books

    • Therefore China has a comparative advantage in producing clothing because it has a lower opportunity cost

    • The UK has a comparative advantage in producing computers

    (because it has a lower opportunity cost of .025 compared to Chinas 0.66)

    • If each country now specializes in one good then assuming constant returns to scale output will double

    clothing

    Computers

    UK

    0

    8

    CHINA

    4

    0

    TOTAL

    4

    8

    • Therefore output of both goods has increased illustrating the gains from comparative advantage.

    There are many examples of comparative advantage in the real world e.g. Saudi Arabia and Oil, New Zealand and butter, USA and Soya beans, Japan and cars e.t.c

    limitations of comparative advantage

    Trade Protectionism

    Trade Protectionism

    Despite the advantages of free trade countries may wish to restrict imports for various reasons this can be done through different methods.

    1. Tariffs This is a tax on imports.

    2. Quotas This is a physical limits on the quantity of imports

    3. Embargoes This is a total ban on a good, this may be done to stop dangerous substances

    4. Subsidies If a govt subsidises domestic production this gives them an unfair advantage over competitors. This is quite common

    5. Administrative barriers

    Arguments against Free Trade

    Arguments against Free Trade

    1. Infant Industry Argument.

    If developing countries have industries that are relatively new, then at the moment these industry’s would struggle against international competition. However if they invested in the industry then in the future they may be able to gain Comparative Advantage.

      • This shows that comparative advantage can change over time
      • Therefore protection would allow them to progress and gain experience to enable them to be able to compete in the future

    1. The Senile industry argument.

    If industries are declining and inefficient they may require large investment to make them efficient again. Protection for these industries would act as an incentive to for firms to invest and reinvent themselves. However protectionism could also be an excuse for protecting inefficient firms

    1. To diversify the economy

    Many developing countries rely on producing primary products where
    they currently have a comparative advantage. However relying on agricultural products has several disadvantages

        • Prices can fluctuate due to environmental factors
        • Goods have a low income elasticity of demand. Therefore with economic growth demand will only increase a little
    1. Raise revenue for the govt.

    Import taxes can be used to raise money for the govt however this will
    only be a small amount of money

    1. Help the Balance of Payments

    Reducing imports can help the current account. However in the long term this is likely to lead to retaliation

    1. Cultural Identity

    This is not really an economic argument but more political and cultural. Many countries wish to protect their countries from what they see as an Americanisation or commercialisation of their countries

    1. Protection against dumping

    The EU sold a lot of its food surplus from the CAP at very low prices on the world market. This caused problems for world farmers because they saw a big fall in their market prices

    1. Environmental

    It is argued that free trade can harm the environment because LDC may use up natural reserves of raw materials to export. Also countries with strict pollution controls may find consumers import the goods from other countries where legislation is lax and pollution allowed.

    • However supporters of free trade would argue that it is up to individual countries to create environmental legislation

    Benefits of Free Trade.

    Benefits of Free Trade.

    1. The theory of comparative advantage.

    This explains that by specialising in goods where countries have a lower opportunity cost there can be an increase in economic welfare for all countries

    2. Reducing Tariff barriers leads to trade creation

    Trade creation occurs when consumption switches from high cost producers to low cost producers

    The removal of tariffs leads to lower prices for consumers
    and an increase in consumer surplus

    · Imports will increase
    · The govt will lose tax revenue
    · Domestic firms producing this good will sell less and lose producer surplus
    · However overall there will be an increase in economic welfare

    · The magnitude of this increase depends upon the elasticity of supply and demand. If demand elastic consumers will have a big increase in welfare

    3. Increased Exports.

    As well as benefits for consumers, firms exporting goods where the UK has a comparative advantage will also see a big improvement in economic welfare because they will export more.

    4. Economies of Scale:
    If countries can specialise in certain goods they can benefit from economies of scale and lower average costs, this is especially true in industries with high fixed costs or that require high levels of investment

    5. Increased Competition.
    With more trade domestic firms will face more competition from abroad therefore there will be more incentives to cut costs and increase efficiency. It may prevent domestic monopolies from charging too high prices.

    6. Trade is an engine of growth.
    World trade has increased by an average of 7% since the 1945, causing this to be one of the big contributors to economic growth.

    7. Make use of surplus raw materials
    Middle Eastern counties such as Qatar are very rich in reserves of oil but without trade there would be not much benefit in having so much oil. Japan on the other hand has very few raw material without trade it would be very poor.

    8. Tariffs may encourage inefficiency
    If an economy protects its domestic industry by increasing tariffs industries may not have any incentives to cut costs

    International Trade

    International Trade

    • If countries specialize in the production of certain goods and then trade with other countries there will be an increase in economic welfare. Countries will specialize in those goods where they have a comparative advantage

    Absolute Advantage:
    This occurs when one country can produce a good with less resources than another. E.G. if USA can produce cars with lower cost than the UK the USA has an absolute advantage in producing cars.

    Comparative Advantage:
    A country has a comparative advantage over another in the production of a good if it can produce it at a lower opportunity cost:
    i.e. it has to forego less of other goods in order to produce it.

    The Law of Comparative advantage

    This states that trade can benefit all countries if they specialise in the goods in which they have a comparative advantage

    Policies to reduce deficit

    Policies to reduce a balance of Payments Deficit

    1. Devaluation.
    This involves lowering the value of the currency against others.

    · If there is a devaluation in the currency the price of importing French goods increases and therefore the quantity demanded falls.

    · Exports will be cheaper in price for the French and will increase the quantity of exports

    · Therefore we would expect a devaluation to lead to an improvement in the current account. However it does depend upon the elasticity of demand for exports and imports.

    The Marshall Learner Condition

    This states that a devaluation will improve the balance on the current account,
    on the condition that the combined elasticity’s of demand for imports and exports is greater than one.
    · If (PED x + PED m > 1) then a devaluation will improve current account
    · If (PED x + PED m > 1) then an appreciation will worsen current account

    · This is because the effect on the current account depends on the total value and not just the quantity of exports.

    The J Curve effect

    In short term demand for imports and exports tends to be inelastic. Therefore current account tends to get worse before it gets better.

    · Another problem with devaluation is that it can lead to imported inflation. This is a problem if it leads to cost push inflation. This means the improvement in the current account might only be temporary.

    2. Deflation

    If govt reduces AD by raising interest rates or increasing taxes then people will have less money to spend so they reduce consumption of imports.

    · The UK has a high mpm therefore a reduction in AD improves the current account significantly

    · Deflationary policies will also put pressure on manufacturers to reduce costs and this will lead to more competitive exports and so exports will increase

    · The success of this policy depends on the elasticity of demand for imports

    · However this policy will conflict with other macroeconomic objectives With lower AD, growth is likely to fall causing higher unemployment

    3. Supply Side Policies

    These can improve the competitiveness of the economy and exporters, but this will take time to have effect

    4. Protectionism

    Increased tariffs of quotas will reduce imports and improve the current acc

    However :

    1) Protectionism leads to retaliation so exports will decrease
    2) Domestic industries may become uncompetitive, because there is no incentive.

    Causes of Deficit

    Factors which cause a current account Deficit in the balance of Payments

    • Fixed Exchange Rate

    If the currency is overvalued, imports will be cheaper and therefore there will be a higher Q of imports. Exports will become uncompetitive and therefore there will be a fall in the Quantity of exports.

    • Economic Growth

    If there is an increase in AD and National Income increases, people will have more disposable income to consume goods. If domestic producers can not meet the domestic AD, consumers will have to imports goods from abroad. In the UK we have a high Marginal propensity to imports mpm because we do not have a comparative advantage in the production of manufactured goods. Therefore if there is fast economic growth there tends to be a big increase in imports.

    • Decline in Competitiveness.

    IN the UK there has been a decline in the exporting manufacturing sector, because it has struggled to compete with developing countries in the far east. This has led to a persistent deficit in the balance of trade.

    • Higher inflation

    This makes exports less competitive and imports more competitive. However this factor may be offset by a decline in the value of sterling.

    • Recession in other countries.

    If the UK’s main trading partners experience negative economic growth then they will buy less of our exports, worsening the current account.

    • Borrowing money

    If countries are borrowing money to invest e.g third world countries

    Deterioration in the current account

    This means that the value of exports has increased at a slower rate than the value of imports. Therefore there could have been an increase in the deficit or the surplus could have changed into a deficit

    Causes of Deficit

    Factors which cause a current account Deficit in the balance of Payments

    • Fixed Exchange Rate

    If the currency is overvalued, imports will be cheaper and therefore there will be a higher Q of imports. Exports will become uncompetitive and therefore there will be a fall in the Quantity of exports.

    • Economic Growth

    If there is an increase in AD and National Income increases, people will have more disposable income to consume goods. If domestic producers can not meet the domestic AD, consumers will have to imports goods from abroad. In the UK we have a high Marginal propensity to imports mpm because we do not have a comparative advantage in the production of manufactured goods. Therefore if there is fast economic growth there tends to be a big increase in imports.

    • Decline in Competitiveness.

    IN the UK there has been a decline in the exporting manufacturing sector, because it has struggled to compete with developing countries in the far east. This has led to a persistent deficit in the balance of trade.

    • Higher inflation

    This makes exports less competitive and imports more competitive. However this factor may be offset by a decline in the value of sterling.

    • Recession in other countries.

    If the UK’s main trading partners experience negative economic growth then they will buy less of our exports, worsening the current account.

    • Borrowing money

    If countries are borrowing money to invest e.g third world countries

    Deterioration in the current account

    This means that the value of exports has increased at a slower rate than the value of imports. Therefore there could have been an increase in the deficit or the surplus could have changed into a deficit

    Balance Of Payments

    UK Balance Of Payments

    The Balance of Payments is a record of a country’s transactions with the rest of the world. It shows the receipts from trade. It consists of the current and financial account

    Current account

    This is a record of all payments for trade in goods and services plus income flow it is divided into 4 parts

    • Balance of trade in goods (visibles)
    • Balance of trade in services (invisibles) e.g. tourism, insurance
    • Net income flows (wages and investment income)
    • Net current transfers (e.g. govt aid)

    1. Financial account

    This is a record of all transactions for financial investment. It includes

      • Net investment from abroad (e.g. A UK firm buying a factory in Japan would be a debit item)
      • Net financial flows - These are mainly short term monetary flows such as “hot money flows” to take advantage of exchange rate changes
      • Reserves

    (note the Financial Account used to be called the Capital Account)

    1. Capital Account

    This refers to the transfer of funds associated with buying fixed assets such as land

    • Balancing Item

    In practice when the statistics are compiled there are likely to be errors therefore the balancing item allows for these statistical discrepancies

    Balance of Payments Equilibrium

    • In a floating exchange rate the supply of currency will always equal the demand for currency, and the balance of payments is 0.
    • Therefore if there is a deficit on the current account there will be a surplus on the financial account.
    • If there was an increase in interest rates this would cause hot money flows to enter into the UK, therefore there would be a surplus on the financial account
    The appreciation in the exchange rate would make exports less competitive and imports more competitive therefore with less X and more M there would be a deficit on the current account

    MACROECONOMY

    UK Balance Of Payments

    The Balance of Payments is a record of a country’s transactions with the rest of the world. It shows the receipts from trade. It consists of the current and financial account

    Current account

    This is a record of all payments for trade in goods and services plus income flow it is divided into 4 parts

    • Balance of trade in goods (visibles)
    • Balance of trade in services (invisibles) e.g. tourism, insurance
    • Net income flows (wages and investment income)
    • Net current transfers (e.g. govt aid)

    1. Financial account

    This is a record of all transactions for financial investment. It includes

      • Net investment from abroad (e.g. A UK firm buying a factory in Japan would be a debit item)
      • Net financial flows - These are mainly short term monetary flows such as “hot money flows” to take advantage of exchange rate changes
      • Reserves

    (note the Financial Account used to be called the Capital Account)

    1. Capital Account

    This refers to the transfer of funds associated with buying fixed assets such as land

    • Balancing Item

    In practice when the statistics are compiled there are likely to be errors therefore the balancing item allows for these statistical discrepancies

    Balance of Payments Equilibrium

    • In a floating exchange rate the supply of currency will always equal the demand for currency, and the balance of payments is 0.
    • Therefore if there is a deficit on the current account there will be a surplus on the financial account.
    • If there was an increase in interest rates this would cause hot money flows to enter into the UK, therefore there would be a surplus on the financial account
    The appreciation in the exchange rate would make exports less competitive and imports more competitive therefore with less X and more M there would be a deficit on the current account