Balance of payments ( BOP )
- BOP The record of the economic and financial flows that take place over a specified time period between residents and non-residents of a given country.
- BOP reflects economic and financial flows which are the international transaction in goods, services and financial assets or liabilities.
-
Resident is defined to include all economic units domiciled in the reporting country.
- More than 1 year.
- Subsidiaries located in local, foreign students studying in local
-
Non-resident not domiciled
- Less than 1 year.
- IMF, World Bank, United Nation, Foreign embassies, Military bases
Accounts of the Balance of Payments
- Debit entry 借方 records a transaction that results in a domestic resident making a payment aboard ( paid foreign currency )
- Credit entry 贷方 receiving a payment form abroad
- Double-entry bookkeeping two separate and offsetting entries
Current Account
The current account ( CA ) is used to mark the inflow and outflow of goods and services into a country.
- Goods Trade ( BIGGEST BULK OF BOP)
- Services Trade
- Investment Income
- Unilateral Transfer
Capital and Financial Account
KA are where all international capital transfer are recorded
Capital account now refer the acquisition or disposal of financial and non-financial assets and non-produced assets which are needed for production but have not been produced, like a mine used for the extraction of diamonds.
Financial account records the net value of flo of financial assets and similar claims.
- Direct investment ( between affiliated enterprises, 为了所有权)
- Portfolio investment ( 为了卖掉盈利 )
- Other investment
- Net errors an omissions
Official Reserves Account
Official reserves are financial assets that could be used to settle international debts and claims.
- Reserve transaction
Interpratation of BOP
- CA + KA > 0 BOP surplus
- Basic balance = CA + KA
- BOP surplus a country can make more foreign currencies than spend them or the country’s income from the rest of the world exceeds its payments to the rest of the world.
- Trade balance measures a country’s merchandise exports and imports.
- CA surplus means that the country as a whole is increasing its stock of claims on the rest of the world.
-
KA surplus implies that the country has a net capital inflows.
- Has CA deficit, and it has to borrow from abroad to finance its current consumption.
- Foreign think the country’s economic environment is good for investment.
- balance of international indebtedness , a record of the international investment position on the country financial account balance.
- net creditor \ debtor
CA and the macroeconomics
CA = If
CA = If = S - Id
CA = Y - ( C + Id + G ) = Y - E
CA and KA
CA = If = S - Id - ( G - T )
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