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13 Cards in this Set
- Front
- Back
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Balance of Payments
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The measurement of all international economic transactions between the residents of a country and foreign residents
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Why BOP important
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Gauge competitveness of nation
Indication of pressure on countries exchange rate Forecast of countries market potential Signal of imposition or removal of controls in various types of payments |
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BOP Accounts
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Current Account
Capital/Financial Account Official reserves Net errors and Omissions |
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The Current Account
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All international economic transactions over a one year period
Import and export of goods (BOT) Import and exports of services Net income from foreign investments (dividends, interest) Transfers |
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The Capital Account
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All international transactions of financial assets
Capital Account-very minor Financial Account-direct investment, portfolio investment, other investments (bank deposits, trade credits, AP, AR) |
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Direct Investment
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Financial Account component
Net balance of capital dispersed from and into the US for the purpose of exerting control over assets Over 10% control |
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Portfolio Investment
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This is the net balance of capital that flows in and out of the U.S. but does not reach the 10% threshold of direct investment
Includes debt securities because debt does not give ownership |
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BOP Surplus
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Demand for nation's currency exceeds supply
Government should let value of currency increase OR Accumulate reserves |
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BOP Deficit
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Excess supply of country's currency on market
Government should devalue currency or use official reserves to support its value |
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BOP and GDP
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X-M=current account balance
Current account up then GDP up |
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BOP Equation
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(X – M) + (CI – CO) + (FI – FO) + FXB = BOP
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BOP and Exchange Rate Regimes
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Fixed-government must ensure that BOP is near zero
Floating-no responsibility to peg its foreign exchange rate Managed Float-need to take action to preserve desired exchange rate values |
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BOP and interest rates
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Low rates lead to capital outflows to seek higher returns elsewhere
But in US people pay for growth and stability which is why the deficit has been able to run up |
