International Finance_Minor Updates 2-11-09

International Finance_Minor Updates 2-11-09 - Important...

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1 Important Aspects of the BOP Accounting System Records international transactions made  during a time period (say one year) Records Economic Transactions only  (involves something of monetary value) Records transactions between residents of  one country and residents of all other  countries It is a Double-Entry System.  Each  Transaction produces a credit entry and a  debit entry of equal size.
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2 1. Current Account Debits Credits A. Merchandise imports and exports B. Services: Net goods and services balance C. Unilateral transfers: To Abroad From Abroad Net current account balance Balance of Payment
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3 Balance of Payment 2. Capital Account Debits Credits A. Direct Investment To Abroad From Abroad A. Portfolio Investment To Abroad From Abroad A. Short-term capital To Abroad From Abroad Net Capital Account
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4 Balance of Payment 3. Official Reserves Account A. Gold Export of Import (net) B. Increase of decrease in foreign exchange (net) C. Increase of decrease in liabilities to foreign Central banks (net) 4. Net Statistical Discrepancy Debits Credits
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5 Balance of Payments B = m + x + C - (m1 + x1 + c1) B  = balance of payments effect m = import displacement m1 = import stimulus x = export stimulus x1 = export reduction c = capital inflow for other than import and export payment c1 = capital outflow for other than import and export  payment
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6 Major BOP Components Current Account Investment Income Gifts Capital Account Official Reserves Account Errors and Omissions To make BOP balance (smuggling, subterranean  economy, swaps & hedging transactions)
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7 Strong Dollars Friends and Foes US WINNERS US LOSERS Importers Exporters Consumer Domestic  manufacturers  competing with imports Stock and Bond  Markets Foreign Tourists Travelers Going  Abroad
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8 Other BOP Uses Can Review Current Account -For Capital Inflows (Credits) and Outflows (Debits) -Capital Inflows when foreign owned assets rises -Capital Outflows when domestic owned foreign  assets rise Can Review Official Reserves Account -Official Settlements Balance:  Change in  official reserves; net impact of central bank  intervention in FX markets in support of currency.
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9 BOP Link with Foreign Exchange Forward prices of currencies often reflect BOP  statistics Currencies from nations suffering from BOP  forward discount Currencies from nations with BOP trade  surpluses and low inflation will often sell at a  forward premium Thus, the BOP is helpful in determining future  currency movements, and in assessing  business conditions abroad
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10 Balance of Payments Accounting System Pay attention to BOP Statistics:
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This note was uploaded on 03/24/2010 for the course MBA 720 taught by Professor Ajami during the Summer '09 term at Wright State.

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International Finance_Minor Updates 2-11-09 - Important...

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