1. INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Third Edition Chapter Objective: This chapter serves to introduce the student to the balance of payments. How it is constructed and how balance of payments data may be interpreted. 3 Chapter Three The Balance of Payments
2.
3.
4.
5.
6.
7.
8.
9.
10.
11. U.S. Balance of Payments Data Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
12. U.S. Balance of Payments Data In 2000, the U.S. imported more than it exported, thus running a current account deficit of $444.69 billion. Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
13. U.S. Balance of Payments Data During the same year, the U.S. attracted net investment of $444.26 billion—clearly the rest of the world found the U.S. to be a good place to invest. Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
14. U.S. Balance of Payments Data Under a pure flexible exchange rate regime, these numbers would balance each other out. Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
15. U.S. Balance of Payments Data In the real world, there is a statistical discrepancy. Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
16. U.S. Balance of Payments Data Including that, the balance of payments identity should hold: BCA + BKA = – BRA ($444.69) + $444.26 + $0.73 = $0.30 = – ($0.30) Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
17. Balance of Payments and the Exchange Rate Q P Exchange rate $ S D Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
18. Balance of Payments and the Exchange Rate Q P As U.S. citizens import, they are supply dollars to the FOREX market. Exchange rate $ S D Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
19. Balance of Payments and the Exchange Rate Q P As U.S. citizens export, others demand dollars at the FOREX market. Exchange rate $ S D Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
20. Balance of Payments and the Exchange Rate Q P S D As the U.S. government sells dollars, the supply of dollars increases. S 1 Exchange rate $ Credits Debits Current Account 1 Exports $1,418.64 2 Imports ($1,809.18) 3 Unilateral Transfers $10.24 ($64.39) Balance on Current Account ($444.69) Capital Account 4 Direct Investment $287.68 ($152.44) 5 Portfolio Investment $474.39 ($124.94) 6 Other Investments $262.64 ($303.27) Balance on Capital Account $444.26 7 Statistical Discrepancies Overall Balance $0.30 Official Reserve Account ($0.30) 0.73
21.
22. Balances on the Current (BCA) and Capital (BKA) Accounts of the United States Source: IMF International Financial Statistics Yearbook, 2000
23. Balances on the Current (BCA) and Capital (BKA) Accounts of United Kingdom Source: IMF International Financial Statistics Yearbook, 2000
24. Balances on the Current (BCA) and Capital (BKA) Accounts of Japan Source: IMF International Financial Statistics Yearbook, 2000
25. Balances on the Current (BCA) and Capital (BKA) Accounts of Germany Source: IMF International Financial Statistics Yearbook, 2000
26. Balances on the Current (BCA) and Capital (BKA) Accounts of China Source: IMF International Financial Statistics Yearbook, 2000
27.
28. Balances on the Current (BCA) and Capital (BKA) Accounts of Five Major Countries Source: IMF International Financial Statistics Yearbook, 2000
![Chapter Three Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)