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

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

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

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 –58Official settlement account:

(14)Official international reserves+106

Balance of payments 0©2013 McGraw-Hill Ryerson Ltd. Chapter 17, LO2

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

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

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