Chapter_03 - Balance of Payments Accounting The Balance of...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

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

Unformatted text preview: Balance of Payments Accounting The Balance of Payments is the statistical record of a countrys international transactions over a certain period of time presented in the form of double-entry bookkeeping. N.B. when we say a countrys balance of payments we are referring to the transactions of its citizens and government . Balance of Payments Example Suppose that Maplewood Bicycle in Maplewood, Missouri, USA imports $100,000 worth of bicycle frames from Mercian Bicycles in Darby England. There will exist a $100,000 credit recorded by Mercian that offsets a $100,000 debit at Maplewoods bank account. This will lead to a rise in the supply of dollars and the demand for British pounds. The balance of payments accounts are those that record all transactions between the residents of a country and residents of all foreign nations. They are composed of the following: The Current Account The Capital Account The Official Reserves Account Statistical Discrepancy Balance of Payments Accounts The Current Account Includes all imports and exports of goods and services (invisible trade). Includes unilateral transfers of foreign aid. If the debits exceed the credits, then a country is running a trade deficit . If the credits exceed the debits, then a country is running a trade surplus . It is thought that the CA responds to changes in income and the exchange rate. What affects the CA? CA deficit CA(S ) CA surplus Domestic Income (Y) Y CA(S 1 ) Y 1 S Domestic Depreciation J-curve Effect The Capital Account The capital account measures the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign assets. The U.S. enjoys about a $444,000,000,000 capital account surplusabsent of U.S. borrowing from foreigners, this finances our trade deficit. The capital account is composed of Foreign Direct Investment (FDI), portfolio investments and other investments. What affects the KA? KA deficit r - r * KA surplus KA Statistical Discrepancy Theres going to be some omissions and misrecorded transactionsso we use a plug figure to get things to balance. Exhibit 3.1 shows a discrepancy of $0.73 billion in 2000. The Official Reserves Account Official reserves assets include gold, foreign currencies, SDRs, reserve positions in the IMF. The Balance of Payments Identity BCA + BKA + BRA = 0 where BCA = balance on current account BKA = balance on capital account...
View Full Document

This note was uploaded on 07/16/2011 for the course FINA 5331 taught by Professor Staff during the Spring '08 term at UT Arlington.

Page1 / 31

Chapter_03 - Balance of Payments Accounting The Balance of...

This preview shows document pages 1 - 13. Sign up to view the full document.

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