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A current account is an assessment of a country’s current balance of transactions. If the current account is in surplus, it means that a nation has surplus funds and is investing money abroad. When in deficit, a nation is borrowing from other countries to finance its activities. This assessment is an important indicator of economic health and foreign trade activities and is regularly updated with the latest applicable information.
To determine the current account, a country’s net imports are subtracted from exports. This includes payments for goods and services, interest payments and other types of foreign trade activity. When imports are less than exports, the current account is in surplus. The nation is holding back more funds than it spends. When imports exceed exports, the country is in a state of trade deficit. It is spending more than it earns and is in debt to other nations.
The current account is part of the trade balance. The other key aspect of the trade balance is the capital account, which accounts for foreign direct investment. These two metrics are used to assess a nation’s activities in the international financial market. Both are routinely recalculated to provide up-to-date information about a nation’s financial activities. Nations maintain their own statistics and some international agencies may also track the balance of trade.
There are several trends that can be followed in the long term by mapping a country’s trade balance. Nations that get into debt can get stuck in a debt cycle, repeatedly borrowing money to finance activities and being unable to repay it. This can lead to chronic financial problems as nations use austerity measures and other means to try to pay off their foreign debt. Nations with surpluses also tend to acquire larger surpluses over time, relying less on imports to meet their needs. This can lead to a concentration of wealth in the hands of some countries.
Current account, capital account and other financial matters can commonly be found listed in financial publications and may be announced in the news when new figures are released. Historical data can be obtained from government agencies charged with maintaining financial statistics and monitoring foreign trade activity. This data can be useful when identifying and exploring financial trends. Historical and current information is used by economists to make projections about economic health.