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Chapter 36 International Financial Policy

Chapter 36 International Financial Policy - Chapter 36...

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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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