econ423lec19 - The Plan for Today Homework Quiz#6 Balance...

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7/16/2009 1 INTERNATIONAL FINANCE JULY 16 TH , 2009 Lauren Heller Econ 423, Financial Markets The Plan for Today box2 Homework Quiz #6 box2 Balance of Payments: A Review box2 Exchange Rate Regimes box5 Capital Controls box2 The Role of the IMF box2 Homework #7 Distributed Recall from last time… box2 Central bank intervention in the foreign exchange market can: box5 Significantly impact the money supply and the monetary base. box5 Alter the equilibrium exchange rate box2 With this in mind, we can now examine the impacts of particular exchange rate policies and regimes. Balance of Payments box2 Balance of Payments - Measures the effects of international financial transactions on the economy. box5 A booking system for recording movements of funds between nations. box2 Current Account box5 Shows international transactions that involve currently produced goods and services. box5 The trade balance is part of this account Balance of Payments box2 C apital Account box5 Shows the net receipts from capital transactions. box5 Capital flows into a country are recorded as receipts . box5 Capital outflows are registered as payments . box2 Given these definitions, the following equation holds: Current Account + Capital Account = Net Change in Governmental International Reserves Balance of Payments box2 The U.S. current account deficit has grown rapidly in recent years box5 Recent decreases – Import declines, etc.
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7/16/2009 2 Balance of Payments Source: Bureau of Economic Analysis, http://www.bea.gov/ Balance of Payments box2 The U.S. current account deficit has grown rapidly in recent years box5 Recent decreases – Import declines, etc. box2 This deficit has raised serious concerns about the impact on the U.S. economy. box5 At the current exchange rate, imports exceed exports. box5 Foreign claims on U.S. assets are growing, possibly leading to a decreased demand for dollars over time. Exchange Rate Regimes box2 Two basic types –Fixed and Floating box2 Fixed Exchange Rate Regime box5 Values of currencies are kept pegged relative to one currency so that exchange rates are fixed.
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