How is a Rest of the world accounts is structured
A Rest of the World (ROW) account is a component of a country's balance of payments (BoP) statement. It represents the economic transactions between a country and the rest of the world, excluding transactions with its domestic residents and other countries. The structure of a ROW account typically includes:
1. Current Account: This section records all transactions related to exports and imports of goods and services, income earned from investments abroad, and payments made to foreign investors.
2. Capital Account: It includes transactions related to the acquisition and disposal of non-financial assets, such as patents, trademarks, copyrights, and rights to natural resources.
3. Financial Account: This section records transactions related to the acquisition and disposal of financial assets and liabilities. It includes foreign direct investment (FDI), portfolio investment, and other investment flows.
4. Net Errors and Omissions: This category accounts for discrepancies and errors in data compilation. A balance is added here to ensure that total inflows and outflows in the balance of payments statement match.
The structure and presentation of the Rest of the World account may vary slightly depending on the reporting standards and practices of each country. However, the overall purpose is to provide a comprehensive overview of a country's economic transactions with the rest of the world.
A Rest of the World (ROW) account is used to record transactions between the domestic economy and the rest of the world. It provides a way to understand the economic activities and financial flows between a country and other countries. The structure of a Rest of the World account can be outlined in the following steps:
1. Current Account: The first section of the ROW account is the Current Account, which records transactions related to international trade in goods and services, primary and secondary income, and transfers between residents and non-residents. It includes the following sub-accounts:
a. Goods Balance: Records exports and imports of goods.
b. Services Balance: Tracks exports and imports of services such as transportation, tourism, and financial services.
c. Primary Income: Captures income earned and payable on investments, such as interest, dividends, and wages.
d. Secondary Income: Records transfers of funds, gifts, and grants between residents and non-residents, like foreign aid or remittances.
2. Financial Account: The second section of the ROW account is the Financial Account, which captures transactions related to the acquisition and disposal of financial assets and liabilities between residents and non-residents. It includes the following sub-accounts:
a. Direct Investment: Records investment in physical assets, including the acquisition of controlling ownership interest in foreign companies.
b. Portfolio Investment: Tracks purchases and sales of securities, such as stocks and bonds.
c. Financial Derivatives: Captures transactions involving derivatives, such as futures contracts or options.
d. Other Investment: Records transactions related to loans, currency, deposits, and other investments.
e. Reserve Assets: Tracks changes in the country's official reserves, typically held in foreign currencies or gold.
3. Capital Account: The third section of the ROW account is the Capital Account, which reflects capital transfers and non-produced, non-financial assets between residents and non-residents. This section captures transactions that are not explained by the current or financial account.
4. Balancing Item: The last item in the ROW account is the Balancing Item, which ensures that the overall transactions in the account balance. It represents the statistical discrepancy that arises due to errors and omissions in data reporting.
By analyzing the various sub-accounts and their corresponding transactions, policymakers, economists, and analysts can gain insights into the economic activity and financial relationships between a country's domestic economy and the rest of the world.