Please someone for the love of god help me. I can't find two sources on the internet that don't have conflicting or very difficult to understand information on the balance of payments. I have various questions.
- (I know this has been asked on here before but the answers don't help that much) why does the BOP always balance to zero?
- Why do some sources say the capital account = financial account and others (including my textbook) lists them as two different items?
- Example to help me understand please: If Japan exports a car for €20,000, that would mean a surplus of €20,000 in the current account right? Does that mean a deficit of €20,000 in the capital account? Why?
Here's what I found on investopedia:
Because all the transactions recorded in the balance of payments sum to zero, countries that run large trade deficits (current account deficits), like the United States, 1 must by definition also run large capital account surpluses. This means more capital is flowing into the country than going out, caused by an increase in foreign ownership of domestic assets. A country with a large trade surplus is exporting capital and running a capital account deficit, which means money is flowing out of the country in exchange for increased ownership in foreign assets.
That last part... exporting capital [...] which means money is flowing out of the country ..... ? My economics teacher always taught us that export = money coming into the country?
Also I don't understand how an export would cause an increase in ownership of foreign assets? Once a good is exported, that is sold to another country, consumer in foreign market, wouldn't it be entirely theirs? What's with the domestic ownership?
Please someone help me I'm about to quit school.