Question

Define the Balance of Payments report and discuss the importance of the Current Account, Capital/Finance Account and the Official Reserve Account. Which account is most watched and why? Discuss how a change in the currency exchange rate impacts the current account. Here's a question that will require some thought, "How will a weakening U.S. dollar affect unemployment in the U.S.?"

Answer 1

Balance of payment report is a report of all the transactions which are entered by the residents of a country with the rest of the world.

Importance of the current account is related to reflection of net income of a country in respect of trade done with the other country so it will be reflecting the the amount of current account surplus and deficit which has been generated by the country in the short term and it will also reflect the impact of current account on the exchange rate of a country and it will be impacting the growth rate and the employment in the country.

Capital account will be relating to net change of Assets and liabilities of a country in respect to other countries. The official reserve account is a part of capital account and it will be shown under the central bank reserve in order to manage with the balance of payment.

Current account is the most watched account because it will be reflecting the growth rate and the employment in the economy and it will be impacting the overall development of a country.

when the United States dollar will be weakening, it will mean that there will be higher level of employment opportunity in United States of America because there will be higher demand for United States goods due to lower dollar and there will be outsourcing of other jobs into United States of America due to lower cost as the Dollar has depreciated so it will be leading to HIGHER level of employment opportunity in United States of America.