Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 70 views

    Global Econ - Balance of Payments - Lecture

    Uploaded by

    Katherine Sauer
    The document discusses the balance of payments (BoP) which measures payments between a country and the rest of the world. [1] The BoP has two main components - the current account which covers trade, income, and transfers, and the financial account which covers capital transactions and changes in reserves. [2] For the US in 2005, the current account was in deficit while the financial account was in surplus, but the two did not quite balance out, with a small statistical discrepancy making up the difference. [3]

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Global Econ - Balance of Payments - Lecture

    Uploaded by

    Katherine Sauer
    70 views16 pages
    The document discusses the balance of payments (BoP) which measures payments between a country and the rest of the world. [1] The BoP has two main components - the current account which covers trade, income, and transfers, and the financial account which covers capital transactions and changes in reserves. [2] For the US in 2005, the current account was in deficit while the financial account was in surplus, but the two did not quite balance out, with a small statistical discrepancy making up the difference. [3]

    Original Description:

    lecture on the Balance of Payments

    Original Title

    Global Econ - Balance of Payments - lecture

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses the balance of payments (BoP) which measures payments between a country and the rest of the world. [1] The BoP has two main components - the current account which covers trade, income, and transfers, and the financial account which covers capital transactions and changes in reserves. [2] For the US in 2005, the current account was in deficit while the financial account was in surplus, but the two did not quite balance out, with a small statistical discrepancy making up the difference. [3]

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    70 views16 pages

    Global Econ - Balance of Payments - Lecture

    Uploaded by

    Katherine Sauer
    The document discusses the balance of payments (BoP) which measures payments between a country and the rest of the world. [1] The BoP has two main components - the current account which covers trade, income, and transfers, and the financial account which covers capital transactions and changes in reserves. [2] For the US in 2005, the current account was in deficit while the financial account was in surplus, but the two did not quite balance out, with a small statistical discrepancy making up the difference. [3]

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 16

    The Balance of Payments

    Dr. Katherine Sauer


    Global Economic Issues
    ECON 241
    1
    A. What is the Balance of Payments?

    The BoP measures the payments that flow between any individual
    country and all other countries (the rest of the world … ROW)

    It is used to summarize all international economic transactions for a


    country.

    It reflects:
    - all payments and liabilities owed to the ROW (debits)
    - all payments and obligations received from ROW (credits)

    2
    B. Components of the BoP

    Balance of Payments = Current Account + Financial Account

    Current Account

    The Current Account is the sum of three components:

    trade balance + net factor income + net unilateral transfers


    from ROW from ROW

    3
    trade balance = export value – import value

    = value that ROW value that domestics


    pays for – pay for
    domestic g&s foreign g&s

    = payments from payments to


    ROW for – ROW for
    g&s g&s

    trade balance = “net income from goods and services”

    4
    net factor income =

    interest and dividend interest and dividend


    payments to domestics – payments to foreigners
    who hold foreign assets who hold domestic assets

    asset income asset income paid


    from ROW – to ROW

    ex: If you own stocks in the London Stock Exchange and they
    pay you a dividend, that counts as asset income from ROW.

    5
    net unilateral transfers =

    foreign aid, grants, foreign aid, grants,


    gifts, remittances – gifts, remittances
    from ROW paid to ROW

    _________________________________________________

    Current Account is “net income”.


    - net income from goods and services
    - net factor income
    - net unilateral transfer income

    6
    The trade balance is the largest component of the Current
    Account.

    A trade surplus means that there is a Current Account Surplus.


    This means that there is positive net income from abroad.

    A trade deficit means that there is a Current Account Deficit.


    This means that there is negative net income from abroad.

    7
    Financial Account

    The Financial Account is the sum of three components:

    capital account + net foreign investment + change in official


    reserves

    The Capital Account includes


    debt forgiveness between nations
    transfer of assets by migrants leaving/entering a nation
    (non-financial assets … ex: land)
    (non-produced assets … ex: a mine)
    uninsured asset destruction

    8
    Net Foreign Investment = net change in asset ownership

    domestic ownership ROW ownership


    of foreign assets – of domestic assets

    (assets: FDI, stocks, bonds, currency, bank deposits, real


    estate…)

    ex: When Toyota built a plant in Princeton, ROW


    ownership of domestic assets increased. NFI would
    fall.

    If you buy a vacation home in Mexico, domestic


    ownership of foreign assets increases. NFI would
    rise.
    9
    The Official Reserves Balance records the transactions of
    financial assets and deposits by official government agencies.

    Includes
    - gold reserves
    - foreign exchange deposits
    - IMF special drawing rights

    10
    The Financial Account is formerly know as the Capital Account.

    It was called the Capital Account until 1999. Then the US


    officially changed the name of it.

    The Financial Account, not including Official Reserves, is


    commonly called the Capital Account.

    So technically the Capital Account is


    debt forgiveness between nations
    transfer of assets by migrants leaving/entering a nation
    uninsured asset destruction

    but if you hear someone say the “Capital Account” they probably
    mean the financial account without official reserves. (net change
    in asset ownership) 11
    C. The BoP equation

    Balance of Payments = Current Account + Financial Account

    The BoP is always equal to zero.

    If there is a Current Account deficit, then the Financial Account must


    be a surplus. (vice versa)

    12
    BoP = current account + capital account + change in official reserves

    A BoP deficit means:


    1) Current Account + Capital Account < 0

    ROW buy domestics ROW assets domestic assets


    domestic – buy ROW + owned by – owned by < 0
    g&s g&s domestics ROW

    ROW buy ROW assets domestics domestic assets


    domestic + owned by < buy ROW + owned by
    g&s domestics g&s ROW

    “payments” from ROW < “payments” to ROW

    2) Change in official reserves > 0


    13
    A Bop Surplus means:

    1) Current Account + Capital Account > 0

    payments from ROW > payments to ROW

    2) Change in official reserves < 0

    14
    Table 1. U.S. International Transactions
    Line [Millions of dollars] Source: BEA 2005
      Current account  
    1 Exports of goods and services and income receipts  1,749,892
    2     Exports of goods and services  1,275,245
    12     Income receipts  474,647
    18 Imports of goods and services and income payments  -2,455,328
    19     Imports of goods and services  -1,991,975
    29     Income payments  -463,353
    35 Unilateral current transfers, net  -86,072
      Capital and financial account  
      Capital account  
    39 Capital account transactions, net  -4,351
      Financial account  
    40 U.S.-owned assets abroad, net  -426,801
    41     U.S. official reserve assets, net  14,096
    55 Foreign-owned assets in the United States, net  1,212,250
    56     Foreign official assets in the United States, net  199,495
    70 Statistical discrepancy (sum of above items with sign reversed) 15
     10,410
    Value of the Current Account = -791,508
    (line 1 + 18 + 35)
     
    Value of the Capital/Financial Account = +781,098
    (line 39 + 40 + 55)
     
    The Current Account is in deficit and the Financial Account is in
    surplus.
     
    current account + capital/financial account = -10,410
     
    But that doesn’t equal zero!
     
    The difference is called statistical discrepancy.
     

    16

    You might also like