The Balance of Payments BOP data is important for government policymakers and MNEs as it is a gauge of a nations competitiveness or health (domestic and/or foreign) For a MNE both home and host country BOP data is important as: An indication of pressure on a country's foreign exchange rate A signal of the imposition or removal of controls in various sorts of payments (dividends,interest, license fees,royalties and other cash disbursements) A forecast of a country's market potential (especially in the short run)
The Balance of Payments BOP data is important for government policymakers and MNEs as it is a gauge of a nations competitiveness or health (domestic and/or foreign) For a MNE both home and host country BOP data is important as: An indication of pressure on a country’s foreign exchange rate A signal of the imposition or removal of controls in various sorts of payments (dividends, interest, license fees, royalties and other cash disbursements) A forecast of a country’s market potential (especially in the short run)
Typical BOP Transactions Each of the following represents an international economic transaction that is counted in and captured in the US BOP: A US subsidiary of a foreign MNE acts as a distributor for the MNEs products in the US market A US based firm,manages the construction of a major water treatment facility in a foreign country The US subsidiary of a foreign firm pays profits (dividends)back to a parent in its home (foreign) country The US government finances the purchase of military equipment for a foreign military ally
Typical BOP Transactions Each of the following represents an international economic transaction that is counted in and captured in the US BOP: A US subsidiary of a foreign MNE acts as a distributor for the MNEs products in the US market A US based firm, manages the construction of a major water treatment facility in a foreign country The US subsidiary of a foreign firm pays profits (dividends) back to a parent in its home (foreign) country The US government finances the purchase of military equipment for a foreign military ally
Fundamentals of BOP Accounting The BOP must balance It cannot be in disequilibrium unless something has not been counted or has been counted improperly Therefore it is incorrect to state that the BOP is in disequilibrium
Fundamentals of BOP Accounting The BOP must balance It cannot be in disequilibrium unless something has not been counted or has been counted improperly Therefore it is incorrect to state that the BOP is in disequilibrium
Fundamentals of BOP Accounting There are three main elements of the actual process of measuring international economic activity: Identifying what is and is not an international economic transaction Understanding how the flow of goods,services, assets,and money create debits and credits to the overall BOP Understanding the bookkeeping procedures for BOP accounting It is a daunting task to measure all international transactions that take place in and out of a country over a year
Fundamentals of BOP Accounting There are three main elements of the actual process of measuring international economic activity: Identifying what is and is not an international economic transaction Understanding how the flow of goods, services, assets, and money create debits and credits to the overall BOP Understanding the bookkeeping procedures for BOP accounting It is a daunting task to measure all international transactions that take place in and out of a country over a year
The BOP as a Flow Statement The BOP is often misunderstood as many people infer from its name that it is a balance sheet, whereas in fact it is a cash flow statement By recording all international transactions over a period of time such as a year,it tracks the continuing flows of purchases and payments between a country and all other countries It does not add up the value of all assets and liabilities of a country on a specific date (as an individual firm's balance sheet would do)
The BOP as a Flow Statement The BOP is often misunderstood as many people infer from its name that it is a balance sheet, whereas in fact it is a cash flow statement By recording all international transactions over a period of time such as a year, it tracks the continuing flows of purchases and payments between a country and all other countries It does not add up the value of all assets and liabilities of a country on a specific date (as an individual firm’s balance sheet would do)