Current Account is the country’s short term transaction or difference between its saving and investment. It concerns with visible trade of goods and services, unilateral transfer, and income from investment. The credit and debit of foreign exchange from these transactions are also recorded in the balance of the current account The resulting balance of the current account is approximated as the sum total of the balance of trade.
The main components of the current account are:
- Trade in goods (visible balance)
- Trade in services (invisible balance), e.g. insurance and services
- Investment incomes, e.g. dividends, interest and migrants remittances from abroad
- Net transfers – e.g. International aid.
Deficit and Surplus of Current Account
- A deficit on the current account means that the value of imports is greater than the value of exports.
- A surplus on the current account means that the value of imports is less than the value of exports.
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