Professional Documents
Culture Documents
p e Balance
of Payments | | 3
| |
C apter Objective:
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Balance of Payments Example
[ Suppose t at Maplewood Bicycle in
Maplewood Missouri, USA imports
$100,000 wort of bicycle frames from
Mercian Bicycles in Darby England.
[ p ere will exist a $100,000 credit recorded
by Mercian t at offsets a $100,000 debit at
Maplewood¶s bank account.
[ p is will lead to a rise in t e supply of
dollars and t e demand for Britis pounds.
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Balance of Payments Accounts
[ p e balance of payments accounts are t ose t at
record all transactions between t e residents of a
country and residents of all foreign nations.
[ p ey are composed of t e following:
p e Current Account
p e Capital Account
Statistical Discrepancy
p e Official Reserves Account
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p e Current Account
[ Includes all imports and exports of goods and
services.
[ Includes unilateral transfers of foreign aid.
[ If t e debits exceed t e credits, t en a country is
running a .
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p e Capital Account
[ p e capital account measures t e difference
between U.S. sales of assets to foreigners and U.S.
purc ases of foreign assets.
[ p e U.S. enjoys about a $150,000,000,000 capital
account surplus²absent of U.S. borrowing from
foreigners, t is ³finances´ our trade deficit.
[ p e capital account is composed of Foreign Direct
Investment (FDI), portfolio investments and ot er
investments.
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Statistical Discrepancy
[ p ere¶s going to be some omissions and
misrecorded transactions²so we use a ³plug´
figure to get t ings to balance.
[ Ex ibit 3.1 s ows a discrepancy of $96.76 billion
in 1997.
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p e Official Reserves Account
[ Official reserves assets include gold, foreign
currencies, SDRs, reserve positions in t e IMF.
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p e Balance of Payments Identity
BCA + BKA + BRA = 0
w ere
BCA = balance on current account
BKA = balance on capital account
BRA = balance on t e reserves account
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U.S. Balance of Payments Data
In 1997, t e
1 Exports $1,167.61
U.S. imported
2 Imports ($1,295.53)
3 Unilateral pransfers $6.13 ($45.01)
more t an it
($166.80) exported, t us
running a
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28) current account
6 Ot er Investments
$194.95 ($227.2) deficit of
$264.58
7 Statistical Discrepancies ($96.76) $166.8 billion.
$1.02
($1.02)
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U.S. Balance of Payments Data
During t e same
year, t e U.S.
1 Exports $1,167.61
2 Imports ($1,295.53)
attracted net
3 Unilateral pransfers $6.13 ($45.01) investment of
($166.80) $264.58
4 Direct Investment $107.93 ($119.44)
billion²clearly
5 Portfolio Investment $387.62 ($79.28) t e rest of t e
6 Ot er Investments $194.95 ($227.2)
$264.58
world found t e
7 Statistical Discrepancies ($96.76) U.S. to be a
$1.02
($1.02)
good place to
invest.
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U.S. Balance of Payments Data
1 Exports $1,167.61
Under a pure
2 Imports ($1,295.53)
flexible
3 Unilateral pransfers $6.13 ($45.01) exc ange rate
($166.80) regime, t ese
4 Direct Investment $107.93 ($119.44) numbers would
5 Portfolio Investment $387.62 ($79.28) balance eac
6 Ot er Investments $194.95 ($227.2)
$264.58
ot er out.
7 Statistical Discrepancies ($96.76)
$1.02
($1.02)
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U.S. Balance of Payments Data
1 Exports $1,167.61
In t e real
2 Imports ($1,295.53)
world, t ere
3 Unilateral pransfers $6.13 ($45.01) is a statistical
($166.80) discrepancy.
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Ot er Investments $194.95 ($227.2)
$264.58
7 Statistical Discrepancies ($96.76)
$1.02
($1.02)
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U.S. Balance of Payments Data
1 Exports $1,167.61
Including t at,
2 Imports ($1,295.53)
t e balance of
3 Unilateral pransfers $6.13 ($45.01) payments identity
($166.80) s ould old:
4 Direct Investment $107.93 ($119.44) BCA + BKA = - BRA
5 Portfolio Investment $387.62 ($79.28)
6 Ot er Investments $194.95 ($227.2)
$264.58
7 Statistical Discrepancies ($96.76)
$1.02
($1.02)
($166.80) + $264.58 + ($96.76) = $1.02= ±($1.02)
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Balance of Payments and t e
Exc ange Rate
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral pransfers $6.13 ($45.01)
($166.80)
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Ot er Investments $194.95 ($227.2)
$264.58
7 Statistical Discrepancies ($96.76)
$1.02 M
($1.02) Exc ange rate $
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Balance of Payments and t e
Exc ange Rate
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral pransfers $6.13 ($45.01)
($166.80)
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Ot er Investments $194.95 ($227.2)
$264.58
7 Statistical Discrepancies ($96.76)
$1.02 M
($1.02) Exc ange rate $
As U.S. citizens import, t ey are supply dollars to t e FOREX market.
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Balance of Payments and t e
Exc ange Rate
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral pransfers $6.13 ($45.01)
($166.80)
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Ot er Investments $194.95 ($227.2)
$264.58
7 Statistical Discrepancies ($96.76)
$1.02 M
($1.02) Exc ange rate $
As U.S. citizens export, ot ers demand dollars at t e FOREX market.
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Balance of Payments and t e
Exc ange Rate
1 Exports $1,167.61
2 Imports ($1,295.53)
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Balance of Payments prends
Balance of Payments ($b)
£
£
£
£
Year
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Balance of Payments prends
Balance of Payments ($b)
£
£
£
Year
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Balance of Payments prends
[ ermany traditionally ad current account
surpluses.
[ Since 1991 ermany as been experiencing
current account deficits.
[ p is is largely due to erman reunification and
t e resultant need to absorb more output
domestically to rebuild t e former East ermany.
[ W at matters is t e nature and causes of t e
disequilibrium.
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Balance of Payments prends
Balance of Payments ($b)
£
£
£
£
Year
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End C apter p ree
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