Balance of Payment

Balance of payment refers to the overall statistical records of a nation’s cross-border transactions within a certain timeframe. In most cases, balance of payment is measured quarterly or yearly. It indicates the sum of trade inflows and outflows that are specifically financial in nature, alongside those pertaining to goods or services (Soukiazis & Cerqueira, 2012). It is crucial to note that trade volumes and transactions taking place between government agencies, business entities and private individuals are also captured in the balance of payment. Each global transaction is usually credited and debited. Financial transactions that lead into cash inflows are credited, while those that culminate into cash outflows are known as debits.

Different accounts included in Balance of Payment (BOP)

The BOP statement splits cross-border trade exchanges into three main accounts. These include the financial, capital and current accounts.  Goods and services traded at the international level are recorded in the current account. Besides, earnings on investments are also included in current accounts (Cencini, 2012).  Assets that are non-financial and not produced are either acquired or disposed in capital account while capital assets that are either financial or non-financial are recorded in financial account. The three core BOP accounts have other minor accounts as explained below.

Current Account
Four minor accounts are operated under the current account. To begin with, we have the merchandise trade account that comprises of various types of purchased, manufactured and raw goods. The latter may consist of goods that have been put on sale or donated.

Second, business services, engineering services, transportation and tourism are recorded in the services sub-account. Other records that go into this minor account include consulting and accounting, management, law as well as copyright and patent fees (Cencini, 2012).

Third, interest on securities, stock holdings derived from dividends, and asset ownership income are enlisted in the income receipts sub-account. Fourth, direct foreign assistance and employee remittances from abroad are recorded in unilateral transfers sub-account.

Capital Account
Two minor accounts function under the capital account of BOP. Migrants’ transfers and debt forgiveness are part and parcel of the capital transfers account. Besides, a sale or acquisition funds transfer and title transfer of immovable assets are recorded in this account. Other vital entities recorded in the transfers account include legacies, death duties and inheritance taxes (Cencini, 2012).

Non-produced assets may be bought or sold. In such a case, the proceeds are included in the acquisition and disposal account.  All assets that are not financial in nature should be enlisted in this sub-account. Other entities that fall under this category include leases and franchises, trademarks, copyrights as well as intangible assets (Soukiazis & Cerqueira, 2012).

Financial Account
Two sub-accounts are run under the main financial account. They entail locally and foreign-owned asset accounts. Private assets, government owned assets and official reserve assets are categorized under the assets owned by a country abroad. Examples of assets recorded in this sub-account include foreign securities, foreign currencies and gold (Cencini, 2012). Direct investment and corporate securities are examples of foreign-owned assets by a country.

How the US government balanced its trade deficit in years 2007­-2008

Boosting the ability of the private sector to export goods and services was one of the focus areas that the US government dwelt on in order to balance its trade deficit during the 2007-2008 fiscal year. For instance, the government worked hard to minimize foreign trade barriers that were already hindering export trade from the private sector. The sector was also assisted with financing export trade in order to refresh and energize American exports abroad. The initiative significantly improved US exports and hence assisted the process of bridging the growing gap in trade deficit. The initiative also supported the creation of 9.8 million jobs leading to robust growth of the US economy (Soukiazis & Cerqueira, 2012).

Trade deficit occurred when imports exceeded exports (Hurd, 2013).  As a result, foreign exchange generated by exports was not enough to cover the currency used in imports.

The vast majority of imports ought to be paid with dividend and foreign currency. This can only be achieved by promoting exports. If foreign exchange earned from the export of goods and services are not enough to pay for imports, it might be cumbersome to remedy foreign debt.

The US government also opted to commit itself to domestic firms by supporting them in foreign sales and marketing alongside developing opportunities for fair business practices. Export promotion efforts and trade advocacy were also included in the US recovery plan during the 2007-2008 financial year. For instance, export financing was promoted and made available (Hurd, 2013).

Current US Balance of Payment (BOP)

A sum of -$119.9 billion was recorded in the second quarter of 2016 while the first quarter’s figure for BOP stood at -$131.8 billion (U.S. current-account deficit, 2016). Release of the third quarter current account balances will take place on 15^th December 2016. Figures obtained from the quarterly data indicate that the deficit in the current account went down by a total sum of $12.0 billion. This marked a major improvement and it is also a positive economic indicator that exports have been improving this year.