Appendix Chapter 16 The Balance of Payments Account.

7
Appendix Chapter 16 The Balance of Payments Account

Transcript of Appendix Chapter 16 The Balance of Payments Account.

Page 1: Appendix Chapter 16 The Balance of Payments Account.

AppendixChapter 16

The Balance of Payments

Account

Page 2: Appendix Chapter 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.

Page 3: Appendix Chapter 16 The Balance of Payments Account.

Copyright ©2015 Pearson Education, Inc. All rights reserved. 16-3

Financial News: Balance of Payments

Page 4: Appendix Chapter 16 The Balance of Payments Account.

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.

Page 5: Appendix Chapter 16 The Balance of Payments Account.

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.

Page 6: Appendix Chapter 16 The Balance of Payments Account.

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.

Page 7: Appendix Chapter 16 The Balance of Payments Account.

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.