24568752-Slides-Developed-by-Jeff-Madura-With-Additions-and-Enhancements-By

24568752-Slides-Developed-by-Jeff-Madura-With-Additions-and-Enhancements-By

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Unformatted text preview: Slide 1 Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 2 Chapter 2 Chapter 2 Balance of Payments Balance 3 The page 39 page Current Account 3 The Capital Account Exchange Rate Exchange IMF and the World Bank IMF Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 3 3“A measurement of all measurement transactions between domestic and foreign residents over a period of time” Madura page 39 Madura Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 4 Balance of Payments Measure of all transactions between domestic and foreign residents domestic x Current account – balance of goods and services 3 net trade + interest and dividend payments exports imports – unilateral transfers Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 5 3 BOP BOP accounts provide a system for documenting economic transactions during a given period between 2 countries given BOP statement documents a country’s BOP past economic transactions with other countries countries • - like a “national” chequing account balance book book 3A Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 6 32 basic concepts 3 1. 1. The statement is made up of balances, which show either surplus or deficit which The total statement must be a balance 3 2. Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 7 Statements are in 4 major Sections x x x x 1. The Current Account - imports and exports of goods and services 2. The Capital Account - investments and loans 3. Errors and Omissions 4. The Official Reserve Account - changes in response to the surpluses or deficits changes in the Current and Capital Account in page 85 & 86 in text Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 8 x Explanation of Balances 5 categories 1. Balance of Trade - imports and exports of JUST goods imports 2. Balance of Goods and Services 2. 3. Current Account 3. Current - goods & services + short term capital transfers 4. Basic Balance - goods & services + long term capital transfers 5. The Official Settlements Account - changes in response to the surpluses or deficits in the changes Current and Capital Account Current Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 9 Careful analysis of a Country’s BOP Careful statements should be made before considering doing business in the country. doing This information can help you evaluate risk. Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 10 Balance of Payments Trends in Trade x NAFTA: NAFTA: – free trade block of US, Canada and Mexico x European trade – Single European Act 3 increased intra-european trade importing larger amounts of goods and services – eastern european trade changes 3 x Trade agreements around the world Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 11 Balance of Payments Trends in Trade x GATT trade agreement – 117 countries agreed to lower tariffs – trade barriers slowly eliminated until year 2000 x European capital flow – much capital shifting to eastern Europe – German reunification 3 redirection of funds increased US interest rates redirection Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 12 Factors affecting Current Account x 1. Inflation – higher rates relative to other countries affects higher trade trade 3 increased imports and decreased exports x 2. National income – increases (decreases) relative to other countries current account decreases (increases) 3 greater wealth implies greater need for foreign greater goods goods 3 Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 13 Factors affecting Current Account x 3. Government restrictions – tariff (tax on imported goods) increases prices & lowers demand on imported increases goods goods 3 increases current account of the country 3 US tariffs on apparel and farm products 3 tariffs imposed in different countries on a case of tariffs imported beer: imported 3 – US: $0.1235, Europe: $2.93, China: $14.64 Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 14 Factors affecting Current Account x 4. Exchange rates – a currency valued in terms of another currency – increase in exchange rate suggests decrease in increase current account current exported goods would cost more, thus decreasing exported demand for the good demand 3 assumes price-elastic goods (sensitive to price assumes changes) changes) 3 Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 15 History Currency value used to be based on stock of Currency gold the government held in central bank. gold This was the Fixed Exchange Rate System This Fixed Problems developed when money was Problems printed, and not backed by gold printed, In 1976 the world changed to a Floating Exchange Rate System Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 16 Floating Exchange Rate System x this system determines the value of a this currency according to the demand for it, and the supply on the international 4X markets markets clean float - no government intervention 3 dirty float - government intervention 3 current system is managed rates, not exactly current managed not free floating free x small economies tie their rate to major small trading Jeff Madura, with additions and enhancements by Tim Richardson trading Slides developed by partners x Slide 17 181 countries - promotes int’l monetary cooperation MAIN PURPOSES x x x x facilitate the expansion and balanced growth of int’l facilitate trade trade promote currency exchange stability establishment of multilateral system of payments help countries with temporary balance of payments help http://www.imf.org/external/np/exr/facts/glance.htm difficulties difficulties Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 18 181 countries - promotes int’l monetary cooperation MAIN ACTIVITY x Lends money to members who have trouble meeting Lends financial obligations - BUT, only on the condition that they undertake economic reforms to eliminate these difficulties for their own good. these http://www.imf.org/external/np/exr/facts/glance.htm Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 19 181 countries - promotes int’l monetary cooperation Key Duties CFF - Compensatory Financing Facility x purpose is to reduce the impact of export purpose instability on country economies instability x Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 20 Areas of Activity x x x Surveillance 3 It appraises its members exchange rate policies 3 Analyses their general economic situation Financial assistance to IMF member countries Technical assistance 3 re: fiscal and monetary policy http://www.imf.org/external/np/exr/facts/glance.htm Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 21 ORIGINS: Official name: International Bank for Official Reconstruction and Development Reconstruction Founded to help reconstruct European Founded Countries after WW II Countries http://www.worldbank.org http://www.worldbank.org Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 22 Activities: Today it is involved in development aid for Today poor countries poor Lends money for long-term development Lends projects. projects. Works with the IMF to resolve debt problems Works in the Developing World in Has made mistakes in giving money to corrupt Has regimes. regimes. Made environmental mistakes ie. Gave money Made by Jeff Madura, with additions and enhancements by Tim Richardson Slides developed Slide 23 Activities: In situations where war has ended, the World In Bank acts to facilitate the transition to sustainable peace after hostilities cease and to support economic and social development. support Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 24 World Investment Flows - Portfolio Investment 3 stocks, bonds, securities, T-bills - Direct Investment 3 mfg. mfg. plants, warehouses, processing operations, representative offices operations, Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Why FDI Exits x Slide 25 x Land, Resources and some types of business Land, cannot be relocated cannot If a company wants access, they have to go there 3 eg. Mining operations, forest harvesting x If your customer moves overseas, you may follow If to continue to be able to supply to 3 eg. Autoparts companies Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Why FDI Exits x Slide 26 x Some companies set up operations overseas Some because manufacturing locally is cheaper than exporting and paying the shipping costs exporting Companies also setup mfg. Overseas in low-wage Companies areas to make products that are then sent back to customers in the Home Country, or to a 3rd market market 3 eg. Japanese companies mfg. Electronic goods in eg. Malaysia, and export to the USA Malaysia, Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson Slide 27 Concerns of the Host Country Jobs for citizens x Additional taxes x Technology x Attraction to other types of companies x loss of economic control x vulnerability to employment crisis if co. vulnerability leaves leaves x Slides developed by Jeff Madura, with additions and enhancements by Tim Richardson ...
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This note was uploaded on 10/21/2010 for the course ERW 12212222 taught by Professor Marks during the Spring '10 term at Charleston.

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