Final AEM 2300 Review - FinalAEM2300Review...

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Final AEM 2300 Review  09/05/2010 10:37:00 Chapter 10 The Balance of Payments Balance of Payments  = record of the economic transactions b/w the residents of one  country the rest of the world International Transaction  = exchange of goods, services or assets b/w residents of  one country and those of another o Residents  = businesses, individuals, gov’t agencies, military personnel, gov’t  diplomats, tourists, and workers who emigrate temporarily Corporations are considered to be resident of country in which it is  incorporated unless its an overseas branch or subsidiary  Double-Entry Accounting Credit transaction  (+) = one that results in a receipt of a payment from foreigners (a  payment to a resident or anything that creates a claim to payment to a resident) o Capital Inflow  o Merchandise exports o Transportation and travel receipts o Income received from investments abroad o Unilateral transfers to residents o Gifts received from foreign residents o Aid received from foreign gov’ts o Investments in the US by overseas residents Debit transaction  (-) = one that leads to a payment to foreigners (any payment by a  resident or anything that creates a claim by a resident) o Imports o Transportation and travel expenditures o Income paid on investments of foreigners
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o Unilateral transfers abroad o Gifts to foreign residents o Aid given by the US gov’t o Overseas investment by US residents o Interest/dividends paid to foreign bond or stockholders Balance-Of-Payments Structure Current Account =  balance of payments refers to the monetary value of  international flows associated with transactions in goods, services, income flows and  unilateral transfers o Merchandise balance (balance of trade) = net trade in goods (exports –  imports) o Service balance:  net trade in services o Income receipts and payments (investment income) Net earnings:  dividends and interest Earnings on US investments abroad less payments on foreign assets  in the US (includes compensation of employees) o Unilateral Transfers  Gifts Private transfer payments = gifts made by individuals and  nongovernmental institutions to foreigners Governmental transfers – foreign assistance programs (Aid) Capital and Financial Account =  Records financial transactions which affect  balance of assets between currencies o Capital outflows  = US investment in foreign assets o Capital Inflows  = Foreign investments in US assets Rise in US liabilities US claims on foreigners decrease
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Foreign held assets in US rise US assets overseas decrease o Direct Investment  – when one country acquires controlling interest (stock 
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Final AEM 2300 Review - FinalAEM2300Review...

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