《国际财务管理》（英文版） Chap 3 The Balance of Payments

Chapter Three The balance of Payments Chapter objective This chapter serves to introduce the student to the balance of payments. How it is constructed and how balance of payments data may be interpreted

INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 3 Chapter Three The Balance of Payments Chapter Objective: This chapter serves to introduce the student to the balance of payments. How it is constructed and how balance of payments data may be interpreted

Chapter Three outline Balance of Payments Accounting o Balance of Payments Accounts The Current account The Capital Account Statistical Discrepancy Official Reserves account o The balance of payments identit o Balance of Payments Trends in major ountries McGraw-Hilylrwoin Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-1 Chapter Three Outline ⚫ Balance of Payments Accounting ⚫ Balance of Payments Accounts ◼ The Current Account ◼ The Capital Account ◼ Statistical Discrepancy ◼ Official Reserves Account ⚫ The Balance of Payments Identity ⚫ Balance of Payments Trends in Major Countries

Balance of payments accounting o The balance of payments is the statistical record of a country's international transactions over a certain period of time presented in the form of double-entry bookkeeping N B. when we say " a country 's balance of payments we are referring to the transactions of its citizens and government McGraw-Hilylrwoin 3-2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-2 Balance of Payments Accounting ⚫ The Balance of Payments is the statistical record of a country’s international transactions over a certain period of time presented in the form of double-entry bookkeeping. N.B. when we say “a country’s balance of payments” we are referring to the transactions of its citizens and government

Balance of Payments Example Suppose that maplewood Bicycle in Maplewood Missouri, USA imports 100,000 worth of bicycle frames from Mercian Bicycles in Darby England o There will exist a 100.000 credit recorded by mercian that offsets a 100,000 debit at Maplewood bank account o This will lead to a rise in the supply of dollars and the demand for british pounds McGraw-Hilylrwoin 3-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-3 Balance of Payments Example ⚫ Suppose that Maplewood Bicycle in Maplewood Missouri, USA imports $100,000 worth of bicycle frames from Mercian Bicycles in Darby England. ⚫ There will exist a $100,000 credit recorded by Mercian that offsets a $100,000 debit at Maplewood’s bank account. ⚫ This will lead to a rise in the supply of dollars and the demand for British pounds

Balance of payments accounts o The balance of payments accounts are those that record all transactions between the residents of a country and residents of all foreign nations They are composed of the following The Current Account The Capital Account a Statistical Discrepancy The official reserves account McGraw-Hilylrwoin Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-4 ⚫ The balance of payments accounts are those that record all transactions between the residents of a country and residents of all foreign nations. ⚫ They are composed of the following: ◼ The Current Account ◼ The Capital Account ◼ Statistical Discrepancy ◼ The Official Reserves Account Balance of Payments Accounts

The Current account o Includes all imports and exports of goods and services Includes unilateral transfers of foreign aid If the debits exceed the credits, then a country is running a trade deficit McGraw-Hilylrwoin 3-5 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-5 The Current Account ⚫ Includes all imports and exports of goods and services. ⚫ Includes unilateral transfers of foreign aid. ⚫ If the debits exceed the credits, then a country is running a trade deficit

The Capital account The capital account measures the difference between U.S. sales of assets to foreigners and U. s purchases of foreign assets The U.S. enjoys about a$150, 000, 000,000 capital account surplus-absent of U.S. borrowing from foreigners, this"finances'our trade deficit The capital account is composed of Foreign Direct Investment(FDD, portfolio investments and other Investments McGraw-Hilylrwoin 3-6 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-6 The Capital Account ⚫ The capital account measures the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign assets. ⚫ The U.S. enjoys about a $150,000,000,000 capital account surplus—absent of U.S. borrowing from foreigners, this “finances” our trade deficit. ⚫ The capital account is composed of Foreign Direct Investment (FDI), portfolio investments and other investments

Statistical Discrepancy o There's going to be some omissions and misrecorded transactions-so we use a plug figure to get things to balance Exhibit 3. 1 shows a discrepancy of $96. 76 billion in1997 McGraw-Hilylrwoin 3-7 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-7 Statistical Discrepancy ⚫ There’s going to be some omissions and misrecorded transactions—so we use a “plug” figure to get things to balance. ⚫ Exhibit 3.1 shows a discrepancy of $96.76 billion in 1997

The official reserves account Official reserves assets include gold, foreign currencies, SDRs, reserve positions in the IMf McGraw-Hilylrwoin 3-8 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-8 The Official Reserves Account ⚫ Official reserves assets include gold, foreign currencies, SDRs, reserve positions in the IMF

The Balance of Payments Identity BCA+BKA+BRA=O where bCa= balance on current account bKa- balance on capital account bra=balance on the reserves account Under a pure flexible exchange rate regime, BCA+BKA=O McGraw-Hilylrwoin 3-9 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-9 The Balance of Payments Identity BCA + BKA + BRA = 0 where BCA = balance on current account BKA = balance on capital account BRA = balance on the reserves account Under a pure flexible exchange rate regime, BCA + BKA = 0