Help Understanding the International Flow of Funds Report
The international flow of funds report payments is a statement of accounts summarizing all transactions between residents of one country and the rest of the world over a specific period of time. Also known as the balance of payments (BOP), the international flow of funds is influenced by a number of factors. These factors are constantly changing and make analyzing the incoming and outgoing flow of funds in the economy of a country very complex. We are aware of how difficult it is for some students to pick up on all the different aspects of the international flow of funds. Our finance homework service can help you develop a full understanding of the international flow of funds statement if you encounter difficulties.
Basics of the International Flow of Funds Report
The balance of payments has two major components:
- Current account: Current account is a broad measure of a country’s international trade balance. It summarizes the flow of funds between a country and rest of the world due to purchases of goods, services, and income from financial assets and transfer payments. Some of the factors that affect a country’s international trade flows are:
- Inflation
- National income
- Government restrictions
- Exchange rates.
A current account deficit is usually the result of high inflation, a high national income, low or no restrictions on imported goods and a strong local currency.
- Capital/financial account: The capital account measures a country’s long-term and short-term capital investments including direct foreign investment, portfolio investment, trade finance and other short-term capital investment. Some of the factors that affect a country’s international capital flows are:
- Government restrictions
- Tax rates
- Exchange rates
- Interest rates
- Growth potential
Countries that have very little restrictions and a big potential for economic growth tend to attract direct foreign investment. Countries with tax rates that aren’t too high, and that have high interest rates and stronger currencies are more likely to attract portfolio investment.
Analyzing a county’s international flow of funds report can provide useful information that can be helpful when considering investment strategies.
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