ch20 - CHAPTER CHECKLIST When you have completed your study...

Info iconThis preview shows pages 1–14. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
When you have completed your study of this chapter, you will be able to C H A P T E R C H E C K L I S T Describe a countries balance of payments accounts and explain what determines the amount of international borrowing and lending. 1 Explain how the exchange rate is determined and why it fluctuates. 2
Background image of page 2
20.1 FINANCING INTERNATIONAL TRADE Balance of Payment Accounts Balance of payments The accounts in which a nation records all transactions that cross borders, including its international trading, borrowing, and lending. Based on payments : if the payment comes IN, recorded as positive ; if the payment goes OUT, recorded as negative . Current account Record of international receipts and payments that do not involve exchange of assets or liabilities — current account balance equals exports minus imports, plus net factor income
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
20.1 FINANCING INTERNATIONAL TRADE Capital account Record of all transactions involving change of ownership of assets or liabilities; includes foreign lending and borrowing, and foreign investment in the United States minus U.S. investment abroad. Official settlements account Record of the change in U.S. official reserves. U.S. official reserves The government’s holdings of gold, foreign
Background image of page 4
20.1 FINANCING INTERNATIONAL TRADE
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
20.1 FINANCING INTERNATIONAL TRADE
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 8
20.1 FINANCING INTERNATIONAL TRADE
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 10
20.1 FINANCING INTERNATIONAL TRADE Silly Individual Analogy An individual’s current account records the income from supplying the services of factors of production and the expenditures on goods and services. An example: In 2000, Joanne Worked and earned labor income of $25,000. Had investments that paid interest and dividends of $1,000. Her labor income of $25,000 is analogous to a country’s current exports. Her $1,000 of interest and dividends is
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
20.1 FINANCING INTERNATIONAL TRADE Joanne: Spent $18,000 buying goods and services to consume. Her consumption expenditure is analogous to a country’s imports. Her current account balance was $26,000 – $18,000, a surplus of $8,000. But she did something else, namely she Bought a house, which cost her $60,000. This was acquiring an asset, so it is analogous to investment abroad – an outlay [negative entry] in the capital account. For a country, balance on current account plus balance on capital account equals change in
Background image of page 12
To pay for the $60,000 house, Joanne borrowed $50,000 from the bank, used the $8,000 surplus on her current account, and used $2,000 that she had in her bank account. Joanne’s borrowing is analogous to a country’s borrowing from the rest of the world. So on her capital account, she has minus $60,000 [paying for the house] and plus $50,000 [what she borrowed; the payment came to her], for a deficit of $10,000. The change in her bank account is
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 67

ch20 - CHAPTER CHECKLIST When you have completed your study...

This preview shows document pages 1 - 14. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online