Current Account

The current account balance is one of two major measures of the nature of a country's foreign trade (the other being the net capital outflow). A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period
What is a current account?

The balance of trade is the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers, investments and other components are ignored. A Nation is said to have a trade deficit if it is importing more than it exports.

In the traditional accounting of balance of payments, the current account equals the change in net foreign assets. A current account deficit implies a paralleled reduction of the net foreign assets.

current account = changes in net foreign assets

The difference between a nation's total exports of goods, services and transfers, and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities.

The level of the current account is followed as an indicator of trends in foreign trade.

Features

The main features of current account are as follows:

  • The main objective of current bank account is to enable the businessmen to conduct their business transactions smoothly.
  • There is no restriction on the number and amount of deposits. There is also no restriction on the withdrawals.
  • Generally bank does not pay any interest on current account. Nowadays, some banks do pay interest on current accounts.
  • Current account is of continuing nature and as such there is no fixed period.

Advantage

The advantages of current account are as follows:

  • Current account enables businessmen to conduct his business transactions smoothly.
  • The businessmen can withdraw any amount at any time from their current accounts. There are also no restrictions on withdrawals.
  • The businessmen can make direct payment to their creditors with the help of cheques.
  • The bank collects money on behalf of its customers and credits the same to their accounts.
  • Current account enables the account holder to obtain overdraft facility.
  • The creditors of the account holder can get credit-worthiness information of the account holder through inter bank connection.
  • Current account facilitates the industrial progress of the country. Without the help of this account, businessmen would have difficulties in running their business.

comments powered by Disqus