chapter  6
48 Pages

Balance of payments and foreign exchange markets

ByJoseph P. Daniels, David D. VanHoose

The balance of payments is a complete tabulation of the total market value of goods services, and financial assets that domestic residents, firms, and governments exchange with residents of other nations during a given period. A double-entry bookkeeping system records both sides of any two-party transaction with two separate and offsetting entries: a debit entry and a credit entry. A negative entry in the balance of payments that records a trans action resulting in a payment abroad by a domestic resident. The markets for foreign exchange are the financial plumbing that facilitates the flow of goods and services. The bulk of foreign exchange transactions occur in cyberspace via digital devices and computers. Hard currency flows usually arise only as a result of activities such as tourism or illegal transactions. The foreign exchange market is the oldest and largest financial market in the world. The foreign exchange market is open twenty-four hours a day, except for short gaps on weekends.