Appendix Chapter 16 The Balance of Payments Account.
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Transcript of Appendix Chapter 16 The Balance of Payments Account.
AppendixChapter 16
The Balance of Payments
Account
Copyright ©2015 Pearson Education, Inc. All rights reserved. 16-2
Balance of Payments Account
• The balance-of-payments is a double-entry bookkeeping system to balance payments to/from foreigners and Americans in the U.S.
Copyright ©2015 Pearson Education, Inc. All rights reserved. 16-3
Financial News: Balance of Payments
Copyright ©2015 Pearson Education, Inc. All rights reserved. 16-4
Current Account
• Trade balance = exports (line 1) minus imports (line 2).
• Trade deficit when difference is negative. Surplus when positive.
• Next three lines show net receipts in three area: investment income, purchase/sale of services, and transfers.
Copyright ©2015 Pearson Education, Inc. All rights reserved. 16-5
Capital Account
• Capital account shows flow of capital between the United States and other countries.
• Note line 8 “statistical discrepancy.” This is errors due to unrecorded transactions involving smuggling and other capital flows.
Copyright ©2015 Pearson Education, Inc. All rights reserved. 16-6
Official Reserve Transactions Balance
• Official reserve transactions balance = the sum of lines 1 though 8.
• Usually when the press refers to a “surplus” or “deficit” in the balance of payments, actually referring to the official reserve transactions balance.
Copyright ©2015 Pearson Education, Inc. All rights reserved. 16-7
Methods of Financing the Balance of Payments
• Most countries must finance a deficit in the balance of payments - provide international reserves to foreign governments and central banks
• U.S. is different since U.S. dollars are the major component of international reserves held by other countries. Just adjust reserve balance.