Yr 2 Economics International Trade Primary Income flows are made up of inward

Yr 2 economics international trade primary income

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Yr 2 Economics International Trade Primary Income flows are made up of inward primary income flows and outward primary income flows Inward primary income flowing into the economy in the current year, which is generated by UK- owned capital assets located overseas. This is income generated from profits, dividends and interest payments flowing into the UK from capital assets overseas Outward primary income flowing out of the economy in the current year, which is generated by overseas-owned capital assets located in the UK. This is income generated from profits, dividends and interest payments flowing out of the UK from capital assets located in the UK Net investment income is the main component of net primary income flows. It is the income earned, mainly by UK companies, from assets owned abroad, minus a similar flow of income received by overseas multinational companies from assets they own in the UK Secondary income flows are current transfers such as gifts of money, international aid and transfers between the UK and the EU, flowing into and out of the UK economy in a particular year. They are payments made without anything of economic value being received in return. The Capital account on the Balance of Payments This is a very small and usually insignificant part of the overall balance of payments The Financial account of the Balance of Payments Financial account: That part of the balance of payments which records capital flows into and out of the economy Q. What are capital flows? A. Capital flows occur when residents of one country acquire capital assets located in other countries. Outward capital flows generate inward flows of investment income in subsequent years The capital outflow enlarges the stock of capital assets located in other countries, owned by residents and multinational companies based in the country exporting the capital Q. What are net capital flows? A. Net capital flows are the difference between inward and outward capital movements Positive net outward capital flows, over a period of years mean that the country acquires capital assets located in other countries that are greater in value than the country’s own assets bought by overseas companies 18
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Yr 2 Economics International Trade Within the financial account of the balance of payments there are three sections : Long-term Direct capital flows, Portfolio capital flows and Short-term ‘hot money’ capital flows Read through the section on the financial account of the balance of payments pg 325 Examples of Direct capital flows: A few years ago Sir Phillip Greene’s Arcadia group (A British company) invested in Topman Shops in the USA. The payments made when purchasing the US stores were a capital outflow. This is an example of an outward direct investment On the other hand, the decisions in the 1980’s and 1990’s by the Japanese vehicle manufactures Nissan, Toyota and Honda to invest in automobile factories in the UK led to inward direct investment known as foreign direct investment (FDI)
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