CH_2_lectnotes_SP11 - Chapter 2 International Flow of Funds...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 2: International Flow of Funds This chapter studies the international flow of funds that results from international transactions by individuals, businesses, and governments. Balance of payments – a statistical (accounting) record of a specific country’s transactions with the rest of the world over a certain period of time. o Credits are associated with cash inflows (e.g., exports) o Debits are associated with outflows (e.g., imports, dividends paid to foreigners) o Micro (one country) and Macro (rest of world) oriented There are at least 4 reasons why the balance of payments is worth studying . 1. The balance of payments provides information concerning the demand and supply of a country’s currency. 2. A country’s balance of payments data may signal its potential as a business partner for the rest of the world. 3. Balance of payments data can be used to evaluate the performance of a country in international economic competition. 4. Helps evaluate how dependent a country’s economy is on its ability to export goods. There are 2 main components of balance of payments accounting 1. Current Account – summarizes the flow of funds due to purchases of goods (merchandise) or services or the payment of income on financial assets. (TOP) 2. Capital Account – summarizes the flow of funds resulting from the sale of assets. (BOTTOM) o And 2 other (lesser)components – 3. Statistical discrepancy — represents omitted or misrecorded transactions 4. The official reserve account – includes transactions undertaken by the central bank (Federal Reserve in the U.S.) to finance the overall balance and intervene in foreign exchange markets. The Current Account covers 3 main areas 1. Balance of trade – the difference between a country’s exports of goods and services and its imports of goods and services. The “trade balance” usually pertains to exports and imports of only goods.
Image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern