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rent account balances. Also known as the Elasticity approach, this model bases its findings on three main determinants - domestic activity, foreign activity, and the real exchange rate. For eg: Chinese Yuan is considered to be undervalued leading to a competitive position in the world export market which results in the current account surplus. On the other hand, relative to the Yuan the US Dollar is quite overvalued and thus this leads to cheaper import contributing to the current account deficit. Considering the fact that US is the single largest merchandise importer while, China is the single largest merchandise exporter, in the world (WTO, 2010), the large deficit in US current account balance & a large surplus in the Chinese accounts reflects this.

 

Investment and savings activity – The net difference between the savings and investments of an economy is also considered as the balance of the current account. Further implying this principle, it can be understood that the level of savings or investments of an economy directly affect the nature of the current account balance.

 

Borrowing and lending activity – Despite the fact that US has the largest economy in the world, US continues to borrow heavily on the international market when it has to technically be lending. This change in roles is because of the ever widening gap between the economy’s exports and imports where the imports far outweigh the exports. As mentioned earlier, this trade imbalance reflects that the current payments by US residents which other than the payment for imports also includes the remittances, interest and dividend payments etc., greatly exceed the analogous payments the US residents receive from abroad. This difference between the payments made and those received is covered by borrowing from the international market, as the receipt on sales of its exports is insufficient to fill this gap (Bernanke, 2005).

 

BALANCE OF PAYMENT ANALYSIS – CASE OF THE UNITED KINGDOM

 

UK’s balance of payment is a key economic statistical tool. It measures the economic transactions between UK residents and the rest of the world. It also provides net figures between the inward and outward transactions, a net flow of transactions between UK residents and the rest of the world and reports how that flow is funded. Simply put, it is a consolidated record of the UK economy as an accounting entity and the entries record the economic transactions between the residents of UK and those of the rest of the world (Pink book, 2009).

 

The UK’s balance of payment has had a current account deficit since 1984 with the last surplus being recorded in 1983 (Pink book, 2010). However, records show that this deficit was measly and has been on the rise ever since. The deficit worsened in the late 80’s and reached around a record low of $82 Billion in 2006 (IMF, 2010) which is the highest in cash terms. However, this figure only equated to -3.3 per cent of the GDP. Historically, the UK 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。