In a symptom that deeper financial threats

In the recent years one question had been asked very frequently, Does the currentaccount imbalances matter? And if yes, then what impacts do the imbalances have on the economy? Or how does a comparisonbetween a global size of IFM where financial flows are so huge that theydominate the current account of an individual economy? I wanted to look for answersto questions like these.

Well, in short Balanceof Payments imbalances have both Merits and Demerits. But analyzing these is noteasy as each country is different and application or effects of these merits/demeritschanges from country to country and from time to time. In other words, However, deficits are neither bad nor are surpluses good. A deficit mayindeed promote development. But the conditions necessary for this arerestrictive and often not fulfilled as still, tradedeficits imply that we are living beyond our means and accumulating toomuch debt.

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The lesson from the recent past (The financialcrises) is thus that renewed excessive imbalances must ultimately be reduced oravoided. As market Demand and supply plays animportant role here, economic policy responses required to change for eachindividual case demanding its own correct strategy, each problem has its ownroot causes.The same factorsthat dictate careful attention to global imbalances also imply, however, thatdata on gross international financial flows and positions are central to anyassessment of financial stability risks. The balance sheet mismatches ofleveraged entities provide the most direct indicators of potential instability,much more so than do global imbalances, though the imbalances may well be asymptom that deeper financial threats are gathering.Organization of the researchThepresent research paper is divided into five chapters. The first chapterdescribes the problem, purpose, andstructure of this paper.

In the second chapter,the Balance of payment is introduced. The subchapters 2.1 summarizes the Balanceof Payment in general context. The subchapters 2.

2 to 2.4 describes the differentsections of Balance of Payment including Capital account, Financial account, and Current Account.  And of Chapter 3 is the aim of this sectionis to demonstrate the importance and different types of balances of Currentaccount are explained in brief. In pointin subchapters 3.1 and 3.2, the Surplus and Deficit balance are highlightedupon in detail. The point 3.

3 and 3.4 provides a detailed analysis of cause and effect of the different balances andits importance for the economy in a long and short run. Finally, Chapter 4summarizes and presents the results of this research project.


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