Assignment

Submitted by: MUHAMMAD TAHIR MANZOOR (BBA-FA09-094) (12B)

Submitted to: Ms. ALIYA MALIK

Topic: BLADES Inc.

Date: April 4, 2013

Capital account:The capital account (also known as financial account) is one of two primary components of the balance of payments, the other being the current account. Whereas the current account reflects a nation's net income, the capital account reflects net change in national ownership of assets. It is a subset of the balance of payments accounts that tracks the flow of currency and other monetary assets used to purchase financial and physical assets. It tracks domestic investment in the foreign sector and foreign investment in the domestic sector.

Reserve account:A nation's ability to prevent its own currency falling in value is limited mainly by the size of its foreign reserves: it needs to use the reserves to buy back its currency. In the absence of foreign reserves, it may affect international pricing indirectly by selling assets (usually government bonds) domestically, which does however diminish liquidity in the economy and may lead to deflation. When a currency rises higher than monetary authorities might like (making exports less competitive internationally), it is usually considered fairly easy to supply more currency. By buying foreign currency or foreign financial assets (usually other governments' bonds) the central bank has a ready means to lower the value of its own currency. The risk however is general price inflation. The term "printing money" is often used to describe such monetization but is an anachronism, most money is in the form of deposits and its supply is manipulated through the purchase of bonds. A third mechanism that Central Banks and governments can use to raise or lower the value of their currency is simply to talk it up or down, by hinting at future action that may discourage speculators. Quantitative easing (Q.E.), a practice used by major central banks in 2009, consisted of large scale bond purchases by central banks. The desire was to stabilize banking systems and if possible encourage investment to reduce unemployment. Sometimes the reserve account is classed as "below the line" and so not reported as part of the capital account