Balance of Payments
The balance of payments is a record of all economic transactions between a country and the rest of the world over a specific period. It consists of the current account, which includes trade in goods and services, and the capital account, which tracks financial transactions. A surplus or deficit in the balance of payments can indicate a country's economic strength or vulnerability.
6 Key excerpts on "Balance of Payments"
eBook - ePub- W. Charles Sawyer, Richard L. Sprinkle(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
...The balance on financial account is a record of transactions that includes payments related to financial assets such as bonds. It also includes transactions involving the sale or acquisition of foreign nonfinancial assets like land. The balance on capital account is a record of other activities resulting in transfers of wealth between countries. This includes nonmarket international asset transfers including debt forgiveness and the transfer of bank accounts by foreign citizens when immigrating to the U.S. At the most basic level, the Balance of Payments is a record of all economic transactions derived from the exchange of goods, services, income, and assets between residents of one country and the rest of the world. The Balance of Payments accounts record the total inflows and outflows of money to and from foreign countries. The inflows and outflows are relatively large for the U.S. Indeed, tracking every dollar would be impossible. One needs to keep in mind that the Balance of Payments statistics for the U.S. or any country are a rough approximation of the magnitude of these flows rather than a precise number resulting from a precise accounting system. Although we are using the term accounting in association with the Balance of Payments account record, in this context the term means something very different from that accountants use. As a result, our first objective is to describe the terminology in the Balance of Payments statement. Our second objective is to ascertain what a country’s Balance of Payments accounts tell us about the country’s domestic economy. As we will show, one can learn a lot about a country’s economy from analyzing its Balance of Payments statement. The balance on current account Table 13.4 shows a summary of the Balance of Payments statistics for the U.S. in the year 2018. The first two rows in the table are merchandise exports and merchandise imports. Notice that the former is a positive number while the latter is a negative number...
eBook - ePubContemporary Economics
An Applications Approach
- Robert Carbaugh(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...Balance of Payments and the markets in which Americans exchange dollars for other currencies. We will also expand our understanding of foreign currency markets by analyzing the advantages and disadvantages of various exchange rate systems. The Balance of Payments Every year, Americans conduct many transactions with foreigners. Some examples include the following: Walmart imports shirts from Hong Kong. General Motors exports minivans to Brazil. Holiday Inn supplies rooms to German tourists visiting San Francisco. Ayako Ozawa, a student at Stanford University, receives gifts from her family in Japan. American investors receive dividends from their investments in Germany. Edgar Valdez, a resident of Mexico, purchases U.S. Treasury bills. George Thomas, who lives in Philadelphia, purchases stock in Sony Corp. of Japan. The U.S. government compiles a statistical record of these and other transactions. This record is called the Balance of Payments. The Balance of Payments is a record of a country’s international trading, borrowing, and lending. In the Balance of Payments, inflows of funds from foreigners to the United States are noted as receipts, with a plus sign. Outflows of funds from the United States to foreigners are noted as payments, with a minus sign. The Balance of Payments has two components, the current account and the capital and financial account, which we will now examine. The Current Account The first component of the Balance of Payments is the current account, which represents, as the name suggests, the dollar value of U.S. transactions in currently produced goods and services, investment income, and unilateral transfers. The most widely reported component of the current account is the balance of trade, also known as the trade balance. This balance includes all of the goods (merchandise) that the United States exports or imports: agricultural products, machinery, autos, petroleum, electronics, computer software, jetliners, textiles, and the like...
eBook - ePubBalance of Payments
Theory and Economic Policy
- Robert Stern(Author)
- 2017(Publication Date)
- Routledge(Publisher)
...1 Balance-of-Payments Concepts and Measurement Our concern in the present chapter is the arrangement and interpretation of balance-of-payments information for purposes of economic analysis and policy assessment. Balance-of-payments accounting is illustrated briefly in the appendix to this chapter. Those interested in greater detail, especially on matters related to accounting, are advised to consult specialized sources. 1 Balance-of-Payments Concepts It is appropriate to begin by a definition : the balance ofpayments is a summary statement of all economic transactions between the residents of one country and the rest of the world, covering some given period of time. Like many definitions, this one requires clarification, especially with respect to the coverage and valuation of economic transactions and the criteria for determining residency. The coverage of economic transactions refers to both commercial trade dealings and noncommercial transfers, which may or may not be effected through the foreign exchange markets and which may not be satisfactorily recorded because of inadequacies in the system of data collection. Particularly difficult questions of valuation are posed by noncommercial transactions and by transactions that take place between domestic and foreign-based units of individual corporations. The determination of residency should ordinarily not be difficult, but even here questions may arise concerning the treatment of overseas military forces and embassies, corporate subsidiaries, and international organizations. 2 Transactions are recorded in principle on a double-entry bookkeeping basis. Each transaction entered in the accounts as a credit must have a corresponding debit and vice versa. The distributions commonly made in classifying the various accounts can be seen from the schematic Balance of Payments represented in Table 1.1 and from the illustrative transactions recorded in the appendix to this chapter...
- Linda L. Lowry(Author)
- 2016(Publication Date)
- SAGE Publications, Inc(Publisher)
...Balance of Payments Balance of Payments Justyna Majewska Justyna Majewska Majewska, Justyna 124 127 Balance of Payments Justyna Majewska Balance of Payments (BOP) is a system of accounts that is a summary statement of all international transactions between the residents of one nation and the residents of other nations over a specified period of time that refer to the exchange of all goods, services (including travel and tourism), foreign aid, capital loans, income, foreign direct investments, short-term capital flows, and financial transfers coming in and going out, and the interrelations underlying all these items. The BOP records inflows of currency from nonresidents as well as payments of residents to nonresidents (outflows of currency) having to do with international trade transactions undertaken by these entities in a period of a year or a quarter. Hereby, the BOP becomes a source of information, aggregated into a few major categories, on the foreign activity of residents and the domestic activity of nonresidents. Analyzing the BOP allows one to recognize the types of transactions that determine the flows of money, goods, and services between countries and to understand the nature of international relations of the economy. Hence, the external determinants of developments on the domestic financial market, foreign exchange, and the real economy become more evident. The information contained in the BOP is useful in assessing the international competitiveness of the economy and its sensitivity to the economic turmoil in the world. Thus, the main purpose of the BOP is to inform the government of the international position of the nation and to help it in its formulation of monetary, fiscal, and trade policies. The Structure of the Balance of Payments The sources of money inflow and outflow are aggregated in the BOP in two main groups of transactions...
eBook - ePubCountry Analysis
Understanding Economic and Political Performance
- David M. Currie(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...CHAPTER 7 Evaluating International Transactions: The Balance of Payments People have traded for thousands of years, and they have traded across borders since countries have existed. However, the practice of recording international transactions from a country perspective is a more recent development. It wasn’t until National Income Accounting was developed during the first half of the twentieth century that a systematic approach to organizing and recording domestic and international transactions was created. The Balance of Payments (BoP) is the accounting record of transactions between a country and other countries. As with all accounting systems, judgments must be made about defining terms, classifying transactions, and standardizing results. The International Monetary Fund leads the effort toward standardizing accounting practices for international transactions. The IMF periodically issues guidelines and encourages countries to conform to the guidelines, but because individual countries prepare the raw data, the data are only as reliable as the individuals and governments preparing them. BoP accounting is an evolutionary process. The standards that apply today are not the standards that applied two decades ago, and they probably will not be the standards that will apply two decades hence. In fact, the IMF proposed standards in the early 1990s that are just now being implemented in each nation’s national accounting system, so there is a possibility of overlap and confusion when discussing accounting aspects of the BoP. Fortunately, interpreting the results is not as fluid as the underlying data, so there is some degree of consistency in interpretation...
- International Monetary Fund(Author)
- 2007(Publication Date)
- INTERNATIONAL MONETARY FUND(Publisher)
...I presume that, in most instances, at least in the policy setting, we seek to judge the degree of economic stress that could augur significantly adverse economic outcomes. We should require data on financial balances at the level of detail at which economic decisions are made: individual households, businesses, and governments. Those data are the equivalent of current account balances, but at the level of individual economic entities where leverage and stress are experienced, and hence, where actions and trends that may stabilize economies originate. National borders, of course, do matter, at least to some extent. Debt service payments on foreign loans ultimately must be funded from exports of tradable goods and services or from capital inflows, whereas domestic debt has a broader base from which it can be serviced. For a business, cross-border transactions can be complicated by legal risks and a volatile exchange rate, but generally these are difficulties not outside most normal business risk. It is true that the market adjustment process seems to be less effective or transparent across national borders than within them. Prices of identical goods at nearby locations but across borders, for example, have been shown to differ significantly, even when denominated in the same currency. 2 Thus, cross-border current account imbalances impart a degree of economic stress that is likely greater than that stemming from domestic imbalances only. But in a flexible economy, are any of these as significant as we tend to make them? I do not deny that nation-defined current account imbalances do have important implications for exchange rates and terms of trade...
