The Balance Of Payments

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The Balance Of Payments

  1. 1. The Balance of Payments Learning Objectives • To understand the fundamental principles of how countries measure international business activity, the balance of payments • To understand the critical differences between trade in merchandise and services • To understand how countries with different government policies toward international trade and investments, or different levels of economic development, differ in their balance of payments Introduction • The measurement of all international economic transactions between the residents of a country and foreign residents is called the balance of payments (BOP) • The two major sub accounts of the balance of payments are: – Current account – Capital account – Reserves Current Account • I.A. goods, services, and income: 1.Merchandise • 2. Shipment and other transportation • 3. Travel • 4. Investment income • 5. Other official • 6. Other private • B. Unrequited transfers: • 1. Private • 2. Officials
  2. 2. Capital Account • II.C. Capital excluding reserves • 1. Direct investment • 2. Portfolio investment • 3.Other long-term, official • 4. Other long- term, Private • 5. Other short- term, official • 6. Other short – term, private Reserves • III. D. Reserves • 1. Monetary gold • 2. Special Drawing Rights • 3. IMF reserve position • 4. Foreign Exchange assets Balance of payment equilibrium • Occurs when surplus or deficit is eliminated from the BOP • Causes for disequilibrium • 1. National output and National spending • 2. Money supply • 3. Exchange Rate • 4. Interest rate

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