C04-The-Balance-of-Payments

Copyright©2009PearsonPrenticeHall.Allrightsreserved.Chapter4TheBalanceofPaymentsTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPayments:LearningObjectives•Learnhowinternationaleconomicactivitythatismeasuredbythebalanceofpayments•Identifybalanceofpaymentactivitiesbynationsinpursuitofmacroeconomicpolicies•Examinehowexchangeratechangesandvolatilityinfluencetradebalancesovertime•Evaluatethehistoryofcapitalmobility,andconditionsthatleadtocapitalflightintimesofcrisis4-2TheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPayments•ThemeasurementofallinternationaleconomictransactionsbetweentheresidentsofacountryandforeignresidentsiscalledtheBalanceofPayments(BOP)–TheIMFistheprimarysourceofsimilarstatisticsworldwide–MonetaryandfiscalpolicymusttaketheBOPintoaccountatthenationallevel–BusinessesneedBOPdatatoanticipatechangesinhostcountry’seconomicpolicies,exchangerateandmarketpotential4-3TheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTypicalBOPTransactions•ExamplesofBOPtransactionsfromUSperspective–USbasedfirm,FluorCorp.,managestheconstructionofamajorwatertreatmentfacilityinBangkok,Thailand–USsubsidiaryofFrenchfirm,SaintGobain,paysprofits(dividends)backtoparentfirminParis–AnAmericantouristpurchasesasmallLapponianecklaceinFinland–AMexicanlawyerpurchasesaUScorporatebondthroughaninvestmentbrokerinCleveland4-4TheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightBOPasaFlowStatement•ExchangeofRealAssets–exchangeofgoodsandservices–Theexportofmerchandise,goodssuchastrucks,machinery,computersisaninternationaltransaction–ImportssuchasFrenchwine,JapanesecamerasandGermanautomobilesareinternationaltransactions–A,currentaccount•ExchangeofFinancialAssets–Exchangeoffinancialclaimsforotherfinancialclaims–ThepurchaseofaUSTreasurybillbyaforeignresident–B,C,E,capitalandfinancialaccount,reserveasset4-5TheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBOPmustbalance•UnderstandingthebookkeepingproceduresforBOPaccounting•Accountingprinciples：double-entrybookkeepingprinciple•Thefullvalueofeachtransactionisbothrecordedonthedebitsideandonthecreditsideinoneormoreaccounts.–Orinanotherwordseveryrecordedtransactionisrepresentedbytwoentrieswithequalvalues.4-6TheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightExhibit4.1GenericBalanceofPayments4-7TheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheCurrentAccounts:details•GoodsandServices–Goods–commonservicesarefinancialservices,constructionservicesandtourismservices•Income–predominatelycurrentincomeassociatedwithinvestmentswhichweremadeinpreviousperiods.–Additionallythewages&salariespaidtonon-residentworkers•CurrentTransfers–Anyone-waytransfer,agiftoragrant•TypicallyCAdominatedbytheexport/importofgoods,forthisreasontheBalanceofTrade(BOT)iswidelyquoted4-8TheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightChinaCurrentaccountbalance:1985-2011million$-50,000050,000100,000150,000200,000250,000300,000350,000400,000450,000yearChinaCA1985-2011balanceofCAtradebalanceInmilliondollarsTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightCA,USBOPTheBalanceofPaymentsandinternationaltransactionsBalanceofPaymentsandKeyMacroeconomicVariablesCapitalMobilityandCapitalFlightFigure16.2CurrentAccountBalancesfortheU.S.,1963-2010TheBalanceofPaymentsandinte