Chapter 36 International Financial Policy
•
Balance of payments
is a country’s record of transactions between its residents and
residents of foreign nations
•
Current account
is balance of payments account in short term
•
Capital account
are long term payments listed in balance of payments account
•
US gov can influence exchange rate by buying selling
official reserves
which are gov
holdings of foreign currencies
•
Current account made of – merchandise, services, net investments, net transfers
•
Difference between value of goods exported and value of goods imported is
balance of
merchandise trade
•
Balance of trade
is the difference between value of goods and services exported and
imported
•
Financial and capital account made of – payments between countries for stocks, bonds,
and ownership – capital account, which includes debt forgiveness, migrant’s transfer, and
transfer related to sale of fixed assets; the financial account, which includes trade in
assets such as business firms, bonds, stocks, and ownership to real estate
•
To buy US assets, foreigners need dollars
•
When country is running payments deficit or surplus, they are excluding government’s
financial transactions
•
Exchange rate is determined in the
forex market
o
$2 trillion traded every day
•
Comparing currencies of only two countries, supply of one currency equals demand for
the other currency
•
Total balance of payments is always in equilibrium – quantity of a currency supplied
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- Spring '08
- Coppock
- Macroeconomics, Exchange Rate, Monetary Policy, Foreign exchange market, foreign exchange markets
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