Chapter Three The balance of Payments 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
INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 3 Chapter Three The Balance of Payments 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
Chapter Three outline Balance of Payments Accounting o Balance of Payments Accounts The Current account The Capital Account Statistical Discrepancy Official Reserves account o The balance of payments identit o Balance of Payments Trends in major ountries McGraw-Hilylrwoin Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-1 Chapter Three Outline ⚫ Balance of Payments Accounting ⚫ Balance of Payments Accounts ◼ 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 o The balance of payments is the statistical record of a country's international transactions over a certain period of time presented in the form of double-entry bookkeeping N B. when we say " a country 's balance of payments we are referring to the transactions of its citizens and government McGraw-Hilylrwoin 3-2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-2 Balance of Payments Accounting ⚫ The Balance of Payments is the statistical record of a country’s international transactions over a certain period of time presented in the form of double-entry bookkeeping. N.B. when we say “a country’s balance of payments” we are referring to the transactions of its citizens and government
Balance of Payments Example Suppose that maplewood Bicycle in Maplewood Missouri, USA imports 100,000 worth of bicycle frames from Mercian Bicycles in Darby England o There will exist a 100.000 credit recorded by mercian that offsets a 100,000 debit at Maplewood bank account o This will lead to a rise in the supply of dollars and the demand for british pounds McGraw-Hilylrwoin 3-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-3 Balance of Payments Example ⚫ 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 Maplewood’s bank account. ⚫ This will lead to a rise in the supply of dollars and the demand for British pounds
Balance of payments accounts o 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 The Current Account The Capital Account a Statistical Discrepancy The official reserves account McGraw-Hilylrwoin Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-4 ⚫ 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: ◼ The Current Account ◼ The Capital Account ◼ Statistical Discrepancy ◼ The Official Reserves Account Balance of Payments Accounts