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ECON 105

What moves a currency’s value?

Follow cross-border payments and capital flows, read currency quotes, and explore real exchange rates, purchasing power parity and currency pegs. Learn with movable examples, then solve ten questions with worked answers.

Cross-border accounts · Step 1 of 12

Record trade, income and transfers

Northland's current account (million Northland dollars)
Current: total −10
Goods exportsGoods imports
Goods exports: 120Goods imports: −155Net services: 15Net factor income: 6Net transfers: 4
Current, total −10; Goods exports 120, Goods imports −155, Net services 15, Net factor income 6, Net transfers 4
FlowReceiptPayment
Goods120155
Services4530
Factor income1812
Transfers95
Northland and Cedar Island are invented economies; their currencies are the Northland dollar and the Cedar Island peso. The current account records goods and services trade, net international factor income, and net transfer payments. A receipt adds to the balance; a payment subtracts from it.
Try it: Change Northland’s goods imports. All amounts here are millions of Northland dollars.
Goods imports (million Northland dollars)155
Trade balance
−20
Current balance
−10
Position
Deficit
Goods balance = (120 − 155) = −35.
Services = (45 − 30) = 15; factor income = (18 − 12) = 6; transfers = (9 − 5) = 4.
Current account = (−35 + 15 + 6 + 4) = −10 million Northland dollars.
Check yourself
Where does a payment for an imported service belong?

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