balance of payments

Discussion in 'Economics' started by panta_rhei, Mar 10, 2008.

  1. Hi,

    I'm currently studying and also have to deal with the BoP, there is something which is not totally clear to me:

    there are two cases of regimes: 1)floating rate and 2)fixed rate.

    regarding 1) it says in my notes that the current account (CA) deficit/surplus is offset by the capital account (KA) deficit/surplus, which makes sense to me. I'm irritated by the "change of official reserves" how can they affect the BoP? I mean it only includes the exchange of currencies, so the "balance of official reserves" should be balanced all the time, shouldn't it??

    regarding 2) it says a CA+KA deficit would be offset by decreasing the official reserves. How can there be a deficit in CA+KA, would that not mean that somebody did not pay for a good/service?? and how can it be offset by regimes exchanging currencies?

    U see, I'm a little bit confused. I'd really appreciate if somebody could try to clarify it for me!!
    Thanks a lot in advance!