CURRENT ACCOUNT BALANCE (САВ)

Definition

Current Account Balance (CAB) is a number derived from a formula relating to a specific country’s Balance of Payments (BOP), Capital Account, and Financial Account. CAB is considered to be the broadest measure of the international flow of goods, services, and capital both in and out of the country. CAB measures economic activity, industry, market conditions, and credit or debt to other countries.

A forex broker or trader will often use CAB in order to determine the overall economic position of a country whose currency they may want to trade. While CAB should, in theory, be zero, this is highly unlikely in actual practice.

CAB is calculated using the following formula:

CAB = X – M + NY + NCT

X = exports of goods and services

M = imports of goods and services

NY = net income abroad

NCT = net current transfers

FX Trading Importance

If a country’s CAB is at a surplus, then that economy is acting as a net creditor to the rest of the international community. The country is saving rather than investing and is providing resources to other economies.

If a country’s CAB is at a deficit, then that economy is acting as a net debtor to the rest of the international community. The country is investing rather than saving and is consuming resources from other economies in order to make up for shortfalls within their own.

CAB is important to consider when involved with forex trading. The surplus or debt of a country is a strong indicator of the overall health of its economy as well as possible future shifts in the exchange rate of its currency.