Shapiro 5 - CHAPTER 5 The Balance of Payments and...

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CHAPTER 5 The Balance of Payments and International Economic Linkages
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BALANCE-OF-PAYMENT CATEGORIES A. THE BALANCE OF PAYMENTS (B-O-P) 1. PURPOSE: Measures all financial and economic transactions over a specified period of time 2
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BALANCE-OF-PAYMENT CATEGORIES 2. Double-entry bookkeeping a. Currency inflows = credits earn foreign exchange b. Currency outflows = debits expend foreign exchange 3
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BALANCE-OF-PAYMENT CATEGORIES 3. Three Major Accounts: a. Current b. Capital c. Official Reserves 4. Current Account records net flow of goods, services, and unilateral transfers. 4
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BALANCE-OF-PAYMENT CATEGORIES 5. Capital Account a. Function: records public and private investment and lending. b. Inflows = credits c. Outflows = debits 5
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BALANCE-OF-PAYMENT CATEGORIES 5. Capital Account (con’t) d. Transactions classified as 1.) portfolio 2.) direct 3.) short term 6
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BALANCE-OF-PAYMENT CATEGORIES 6. Official Reserves Account a. Function: 1.) measures changes in international reserves owned by central banks 2.) reflects surplus/deficit of a.) current account b.) capital account 7
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BALANCE-OF-PAYMENT CATEGORIES 6. Official Reserves Account (con’t) b. Reserves consist of 1.) gold 2.) convertible securities 8
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BALANCE-OF-PAYMENT CATEGORIES 7. Net Effects: a. Sum of all transactions must be zero: 1.) current account 2.) capital account 3.) official reserves 9
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BALANCE-OF-PAYMENT CATEGORIES 8. The Balance-of-payment measures a. Some Definitions: 1.) Basic Balance a.) consists of current account and long- term capital flows 10
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1.) Basic Balance (con’t) b.) emphasizes long-term trends. 11
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This note was uploaded on 02/22/2011 for the course BMGT 446 taught by Professor Staff during the Spring '08 term at Maryland.

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Shapiro 5 - CHAPTER 5 The Balance of Payments and...

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