1.  The Canadian balance of payments shows the balance between  All the payments that Canada receives from foreign countries  All the payments which we make to them 1 ©2013 McGraw-Hill Ryerson Ltd. Chapter 17, LO2

2.  Shows the flows resulting from imports and exports of goods and services  The balance on goods is the net amount of imports and exports of goods only  The exports and imports of services includes sales or purchases to/from residents of foreign nations on things such as insurance, consulting, travel and brokerage services, etc.  The balance on goods and services includes goods and services trade in services, investment income and transfers are included to get the current account balance  In 2011, Canada had a current account deficit of $48 billion 2 ©2013 McGraw-Hill Ryerson Ltd. Chapter 17, LO2

3.  Shows capital inflows and outflows  Purchase or sale of real or financial assets  Official settlements account  TIP  A “+” sign indicates a “source” of foreign exchange,  A “-” sign indicates a “use” of foreign exchange 3 ©2013 McGraw-Hill Ryerson Ltd. Chapter 17, LO2

4. 4 Current Account (1)Merchandise exports$+458 (2)Merchandise imports–456 (3)Balance of trade+2 (4)Exports of services+75 (5)Imports of services–99 (6)Balance on goods and services-22 (7)Net investment income–22 (8)Net transfers–4 (9)Current account balance-48 Capital and financial account: (10) Foreign purchases of assets in Canada (capital inflow)+108 (11) Canadian purchases of assets abroad (capital outflow)–159 (12) Statistical discrepancy-7 (13) Capital account balance–58 Official settlement account: (14)Official international reserves+106 Balance of payments0 ©2013 McGraw-Hill Ryerson Ltd. Chapter 17, LO2

5. 5 ©2013 McGraw-Hill Ryerson Ltd. Chapter 17, LO2

6.  The balance on the current account and the balance on the capital and financial account must always sum to zero  any deficit or surplus in the current account automatically creates an offsetting entry in the capital and financial account  if trading partners have an imbalance in their trade of currently produced goods and services, the only way to make up for that imbalance is with a net transfer of assets from one party to the other 6 ©2013 McGraw-Hill Ryerson Ltd. Chapter 17, LO2

7.  A drawing down of official international reserves (a + official reserves entry) measures a nation’s balance of payments deficit  A building up of official reserves (a – official reserves entry) measures a balance of payments surplus  Deficits not necessarily bad, but cannot be maintained indefinitely, because international reserves are limited 7 ©2013 McGraw-Hill Ryerson Ltd. Chapter 17, LO2