Chapter 2 - Chapter 2 How do countries keep track of the...

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Chapter 2 How do countries keep track of the transactions between residents and foreigners over a period of time? Balance of Payments Does the U.S. currently have a surplus or a deficit in its Balance of Payments? Neither! Due to double- entry bookkeeping. Deficits and surpluses occur only within subcategories of the Balance of Payments Name and discuss the three major categories of a nation's Balance of Payments. Current Account : broadest measure of a country’s international trade in goods and services and income from financial assets. Merchandise Trade Balance : net difference between a country’s export and import of goods. Services : net difference between a country’s export and import of services. Factor Income : income received by investors on their foreign investments in financial assets (interest and dividends). Unilateral Transfers : gifts and grants from governments and private organizations Capital Account : measures changes in country ownership of assets. Foreign Direct Investment : purchase of fixed assets. Portfolio Investment : purchase of long-term financial assets, stocks and bonds. Other Capital Investments : purchase of short-term financial assets, money market securities. Official Reserve Account : governmental international reserves of gold and foreign currencies The six issues related to America's current account and the trade war with China and Japan. #1 Surplus or Deficit : (exports – imports) U.S. had merchandise trade deficit with Japan of $88.5 billion. The U.S. per capita merchandise trade balance with Japan had a trade deficit of $24. Since their population is half the size of the U.S., their total purchase of U.S. goods should not be expected to equal our total purchase of Japanese goods. In contrast, the U.S. has a per capita merchandise trade deficit of $914 with China. China has a much larger population than Japan or the U.S., but its people are very poor compared to the U.S. and Japan.
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This note was uploaded on 07/15/2008 for the course FINC 445 taught by Professor Martindale during the Summer '08 term at Texas A&M.

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Chapter 2 - Chapter 2 How do countries keep track of the...

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