Bo P

The Balance
of Payments
Chapter Objective:
Chapter Three
INTERNATIONAL
FINANCIAL
MANAGEMENT
This chapter serves to introduce the student to the

balance of payments. How it is constructed and
Third Edition
how balance of payments data may be interpreted.
EUN / RESNICK
3-0
Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Three Outline
Balance of Payments Accounting

Balance of Payments Accounts
3-1
The Current Account

The Capital Account
Statistical Discrepancy
Official Reserves Account
The Balance of Payments Identity

Balance of Payments Trends in Major
Countries
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.
3-2
Balance of Payments Example
3-3
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.
Balance of Payments Accounts
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:
3-4
The Current Account

The Capital Account
The Official Reserves Account
The Current Account
Includes all imports and exports of goods and

services.
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.
3-5
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.
3-6
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.
3-7
The Official Reserves Account
Official reserves assets include gold, foreign

currencies, SDRs, reserve positions in the IMF.
3-8
The Balance of Payments Identity

BCA + BKA + BRA = 0
where
BCA = balance on current account
BKA = balance on capital account
BRA = balance on the reserves account
Under a pure flexible exchange rate regime,

BCA + BKA = 0
3-9
U.S. Balance of Payments Data

Credits
Debits
Current Account
1
Exports
Imports
$1,418.64
($1,809.18)
Unilateral Transfers
Balance on Current Account
Capital Account
4
5
6
Direct Investment
Portfolio Investment
Other Investments
Balance on Capital Account
Statistical Discrepancies
Overall Balance
Official Reserve Account
3-10
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
($0.30)

Credits
Debits
Current Account
1
Exports
Imports
$1,418.64
($1,809.18)
Capital Account
4
5
6
Direct Investment
Other Investments
Overall Balance
3-11
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
In 2000, the
U.S. imported
more than it
exported, thus
running a
current account
deficit of
$444.69 billion.
($0.30)

Credits
Debits
Current Account
1
Exports
Imports
$1,418.64
($1,809.18)
Capital Account
4
5
6
Direct Investment
Other Investments
Overall Balance
3-12
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
($0.30)
During the same

year, the U.S.
attracted net
investment of
$444.26
billionclearly
the rest of the
world found the
U.S. to be a
good place to
invest.

Credits
Debits
Current Account
1
Exports
Imports
$1,418.64
($1,809.18)
Capital Account
4
5
6
Direct Investment
Other Investments
Overall Balance
3-13
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
Under a pure
flexible
exchange rate
regime, these
numbers would
balance each
other out.
($0.30)

Credits
Debits
Current Account
1
Exports
Imports
$1,418.64
($1,809.18)
Capital Account
4
5
6
Direct Investment
Other Investments
Overall Balance
3-14
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
In the real
world, there
is a statistical
discrepancy.
($0.30)

Credits
Debits
Current Account
1
Exports
Imports
$1,418.64
($1,809.18)
Capital Account
4
5
6
Direct Investment
Other Investments
Overall Balance
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
Including that,
the balance of
payments identity
should hold:
BCA + BKA = BRA
($0.30)
($444.69) + $444.26 + $0.73 = $0.30= ($0.30)

3-15
Balance of Payments and the

Exchange Rate
Credits
Debits
Exchange rate $
Current Account
1
Exports
Imports
Direct Investment
Other Investments
Overall Balance
3-16
($1,809.18)
Capital Account
4
5
6
$1,418.64
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
D
Q
($0.30)

Exchange Rate
Credits
Debits
Exchange rate $
Current Account
1
Exports
Imports
Direct Investment
Other Investments
Overall Balance
($1,809.18)
Capital Account
4
5
6
$1,418.64
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
D
Q
($0.30)
As U.S. citizens import, they are supply dollars to the FOREX market.
3-17

Exchange Rate
Credits
Debits
Exchange rate $
Current Account
1
Exports
Imports
Direct Investment
Other Investments
Overall Balance
($1,809.18)
Capital Account
4
5
6
$1,418.64
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
D
Q
($0.30)
As U.S. citizens export, others demand dollars at the FOREX market.

3-18

Exchange Rate
Credits
Debits
Exchange rate $
Current Account
1
Exports
Imports
($1,809.18)
Capital Account
4
5
6
Direct Investment
Other Investments
Overall Balance
$1,418.64
$10.24
($64.39)
($444.69)
$287.68
$474.39
$262.64
$444.26
0.73
$0.30
($152.44)
($124.94)
($303.27)
S1
D
Q
($0.30)
As the U.S. government sells dollars, the supply of dollars increases.

3-19
Balance of Payments Trends
Since 1982 the U.S. has experienced continuous

deficits on the current account and continuous
surpluses on the capital account.
During the same period, Japan has experienced the
opposite.
3-20
Balances on the Current (BCA) and Capital

(BKA) Accounts of the United States
500
400
300
200
100
0
-1001982 1984 1986 1988 1990 1992 1994 1996 1998 2000
U.S. BCA
U.S. BKA
-200
-300
-400
-500
Source: IMF International Financial Statistics Yearbook, 2000
3-21

(BKA) Accounts of United Kingdom
40
30
20
10
0
-101982
UK BCA
1984
1986
1988
1990
1992
1994
1996
1998
2000
UK BKA
-20
-30
-40
-50

3-22

(BKA) Accounts of Japan
150
100
50
0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
-50
Japan BCA
Japan BKA
-100
-150
3-23

(BKA) Accounts of Germany
80
60
40
20
0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
-20
Germany BCA
Germany BKA
-40
-60
-80
3-24

(BKA) Accounts of China
35
30
25
20
15
10
5
China BCA
China BKA
0
-51982 1984 1986 1988 1990 1992 1994 1996 1998 2000
-10
-15
3-25
Balance of Payments Trends
Germany traditionally had current account

surpluses.
Since 1991 Germany has been experiencing
current account deficits.
This is largely due to German reunification and
the resultant need to absorb more output
domestically to rebuild the former East Germany.
What matters is the nature and causes of the
disequilibrium.
3-26

(BKA) Accounts of Five Major Countries
500
China BCA
400
China BKA
300
Japan BCA
200
Japan BKA
100
0
-1001982
-200
-300
Germany BCA
1984
1986
1988
1990
1992
1994
1996
1998
2000
Germany BKA
UK BCA
UK BKA
-400
U.S. BCA
-500
U.S. BKA

3-27
End Chapter Three
3-28

Bo P

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Bo P

Hochgeladen von

Copyright:

Verfügbare Formate

The Balance

This chapter serves to introduce the student to the

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Three Outline

Balance of Payments Accounting

The Current Account

The Balance of Payments Identity

Balance of Payments Accounting

The Balance of Payments is the statistical record

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Balance of Payments Example

Suppose that Maplewood Bicycle in

Balance of Payments Accounts

The balance of payments accounts are those that

The Current Account

The Current Account

Includes all imports and exports of goods and

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

The Capital Account

The capital account measures the difference

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Theres going to be some omissions and

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

The Official Reserves Account

Official reserves assets include gold, foreign

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

The Balance of Payments Identity

Under a pure flexible exchange rate regime,

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

U.S. Balance of Payments Data

U.S. Balance of Payments Data

U.S. Balance of Payments Data

During the same

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

U.S. Balance of Payments Data

U.S. Balance of Payments Data

U.S. Balance of Payments Data

($444.69) + $444.26 + $0.73 = $0.30= ($0.30)

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Balance of Payments and the

Balance of Payments and the

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Balance of Payments and the

As U.S. citizens export, others demand dollars at the FOREX market.

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Balance of Payments and the

As the U.S. government sells dollars, the supply of dollars increases.

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Balance of Payments Trends

Since 1982 the U.S. has experienced continuous

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Balances on the Current (BCA) and Capital

Balances on the Current (BCA) and Capital

Source: IMF International Financial Statistics Yearbook, 2000

Balances on the Current (BCA) and Capital

Balances on the Current (BCA) and Capital

Balances on the Current (BCA) and Capital

Balance of Payments Trends

Germany traditionally had current account

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Balances on the Current (BCA) and Capital

Source: IMF International Financial Statistics Yearbook, 2000