Transcript balance of payments

The Balance of Payments Accounts
 The Capital Account
• It records capital asset transfers and tends to be small
for the United States.
• For the most part they result form nonmarket actitives,
or represent the acquisition or disposal of nonproduced,
nonfinancial, and possibly intangible assets (such as
copyrights and trademarks).
– “Exporting”(selling) capital assets is entered into capital
account as a credit(+).
– “importing”(purchasing) capital assets is entered into
capital account as a debit(-).
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The Balance of Payments Accounts
 The Financial Account
• It measures the difference between sales of assets to
foreigners and purchases of assets located abroad.
– Financial inflow (capital inflow)
– A loan from the foreigners with a promise that they will be
repaid
– “Exporting”(selling) financial assets is entered into
financial account as a credit(+).
– Financial outflow (capital outflow)
– A transaction involving the purchase of an asset from
foreigners
– “importing”(purchasing) financial assets is entered into
financial account as a debit(-).
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The Balance of Payments Accounts
 The Fundamental Balance of Payments Identity
• Any international transaction automatically gives rise
to two offsetting entries in the balance of payments
resulting in a fundamental identity:
Current account + financial account + capital account = 0 (12-3)
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The Balance of Payments Accounts
Table 12-2: U.S. Balance of Payments Accounts for 2000
(billions of dollars)
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The Balance of Payments Accounts
Table 12-2: Continued
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The Balance of Payments Accounts
 The Statistical Discrepancy
• Data associated with a given transaction may come
from different sources that differ in coverage, accuracy,
and timing.
– This makes the balance of payments accounts seldom
balance in practice.
– Account keepers force the two sides to balance by
adding to the accounts a statistical discrepancy.
– It is very difficult to allocate this discrepancy among the
current, capital, and financial accounts.
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The Balance of Payments Accounts

Official Reserve Transactions
• One type of financial account, involving the purchase or sale of official
reserve assents by central bank.
– An increase in official reserve assets.
– That is, international reserve held by the Federal Reserve is entered into
financial account as a debit(-), means an increase in U.S. owned assets
held abroad, that is, an”import”of assets from foreigners.
– Example:A U.S. auto dealer imports a Volkswagen from Germany
and pays the auto company with a check for $15,000, Volkswagen
does not want to invest the money in dollar assets, but it so happens
that the Bundesbank is willing to give Volkswagen German money in
exchange for the $15,000 check.The Bundes bank’s international
reserves rise by $15,000, therefore, this transaction results in a
negative $15,000 entry in the German financial account.(and a
positive $15,000 entry in the U.S. financial account)
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The Balance of Payments Accounts
• Central bank
– The institution responsible for managing the supply of
money
• Official international reserves
– Foreign assets held by central banks as a cushion
against national economic misfortune
• Official foreign exchange intervention
– Central banks often buy or sell international reserves in
private asset markets to affect macroeconomic
conditions in their economies.
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The Balance of Payments Accounts
• Official settlements balance (balance of payments)
– The book-keeping offset to the balance of official
reserve transactions
– It is the sum of the current account balance, the capital
account balance, the nonreserve portion of the financial
account balance, and the statistical discrepancy.
– Example: The U.S. balance of payments in 2000 was -$35.6
billion, that is, the balance of official reserve transactions with
its sign reversed.
– A country with a negative balance of payments may
signal that it is running down its international reserve
assets or incurring debts to foreign monetary authorities.
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The Balance of Payments Accounts
Table 12-3: Calculating the U.S. Official Settlements Balance for 2000
(billions of dollars)
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The Balance of Payments Accounts
Table 12-3: Continued
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The Balance of Payments Accounts
 Case Study: Is the United States the World’s
Biggest Debtor?
• At the end of 1999, the United States had a negative
net foreign wealth position far greater than that of any
other single country.
• The United States is the world’s biggest debtor.
• However, the United States has the world’s largest
GNP.
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Summary
 A country’s GNP is equal to the income received by
its factors of production.
• GDP is equal to GNP less net receipts of factor income
from abroad, measures the output produced within a
country’s territorial borders.
 In a closed economy, GNP must be consumed,

invested, or purchased by the government.
In an open economy, GNP equals the sum of
consumption, investment, government purchases, and
net exports of goods and services.
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Summary
 All transactions between a country and the rest of the

world are recorded in its balance of payments
accounts.
The current account equals the country’s net lending
to foreigners.
• National saving equals domestic investment plus the
current account.
• Transactions involving goods and services appear in
the current account of the balance of payments, while
international sales or purchases of assets appear in the
financial account.
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Summary
 The capital account records asset transfers and tends


to be small in the United States.
Any current account deficit must be matched by an
equal surplus in the other two accounts of the balance
of payments, and any current account surplus by a
deficit somewhere else.
International asset transactions carried out by central
banks are included in the financial account.
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Chapter 13
Exchange Rates and the Foreign Exchange Market:
An Asset Approach
Prepared by Iordanis Petsas
To Accompany
International Economics: Theory and Policy, Sixth Edition
by Paul R. Krugman and Maurice Obstfeld
Chapter Organization
 Introduction
 Exchange Rates and International Transactions
 The Foreign Exchange Market
 The Demand for Foreign Currency Assets
 Equilibrium in the Foreign Exchange Market
 Interest Rates, Expectations, and Equilibrium
 Summary
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Introduction
 Exchange rates are important because they enable us


to translate different counties’ prices into comparable
terms.
Exchange rates are determined in the same way as
other asset prices.
The general goal of this chapter is to show:
• How exchange rates are determined
• The role of exchange rates in international trade
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Exchange Rates and
International Transactions
 An exchange rate can be quoted in two ways:
• Direct
– The price of the foreign currency in terms of dollars
– For example:$0.008139 per yen
• Indirect
– The price of dollars in terms of the foreign currency
– For example:¥122.87 per dollar
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Exchange Rates and
International Transactions
Table 13-1: Exchange Rate Quotations
每一美元值
1外幣值多少$ 多少外幣
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Exchange Rates and
International Transactions
 Domestic and Foreign Prices
• If we know the exchange rate between two countries’
currencies, we can compute the price of one country’s
exports in terms of the other country’s money.
– Example: The dollar price of a £50 sweater with a dollar
exchange rate of $1.50 per pound is (1.50 $/£) x (£50) =
$75.
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Exchange Rates and
International Transactions
• Two types of changes in exchange rates:
– Depreciation of home country’s currency
– A rise in the home currency prices of a foreign
currency 說明
– Appreciation of home country’s currency
– A fall in the home price of a foreign currency
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Exchange Rates and
International Transactions
Table 13-2: $/£ Exchange Rates and the Relative Price of American
Designer Jeans and British Sweaters 返回
Exchange rate ($/£)
Pound price of jeans (£)
1.25
36
1.50
30
1.75
25.71
說明
Dollar price of sweaters($)
62.5
75
87.5
說明
Relative price of sweaters in terms of
jeans(pairs of jeans/ sweaters)
1.39
1.67
1.94
說明
Note:The above calculations assume unchanged money price of $45 per pair
of jeans and £50 per sweater.
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