BOP Financial account

12 Key excerpts on "BOP Financial account"

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  eBook - ePub

  Structuralism and Individualism in Economic Analysis

  The "Contractionary Devaluation Debate" in Development Economics

  • S. Charusheela(Author)
  • 2013(Publication Date)
  • Taylor & Francis

    (Publisher)

  The table below provides a sample Balance of Payments (BOP). The BOP is an account which tracks the flows of income, expenditures, and capital across national borders. It represents the aggregate economic transactions undertaken by the members of a nation and the rest of the world. The entries on the Left hand side represent economic activities that generate foreign exchange, and the entries on the Right hand side represent economic activities that use foreign exchange.

  Sources of Foreign Exchange	Uses of Foreign Exchange	“Balances”
  Current Account	Trade
  1.Exports	Imports	Balance
  2.Income received on factor services	Income paid for factor services (including interest on past debt)	Current
  3.Private Remittances from Abroad	Remittances to foreign residents	Account
  4.Unilateral Receipts (Official) Capital Account	Unilateral Disbursements (Official)	Balance
  Captial Account
  5.Direct Foreign investment from abroad	DFI undertaken abroad
  6.Long Term foreign Borrowing	Long Term Foreign Lending	Global
  7.Short Term Foreign Borrowing	Short Term Foreign Lending	Balance
  Official Settlements
  8.Reductions in Reserves    Sales of Gold    Sales of Foreign Exchange    Sales of Other Assets by Central Bank	Additions to Reserves   Purchases of Gold   Purchases of Foreign Exchange   Purchases of Other Assets by Central Bank	(where this line should be is disputed in policy debates)

  NOTES a) All items on the Left Hand Side are POSITIVE or inflows, while all items on the Right Hand Side are outflows and so have to be DEDUCTED from the BOP when the account balances. b) The balance between the items in 1, Exports less Imports, is called the trade balance. c) The balance between the inflows and outflows on the current account (items 1-4) is called the current account balance.

  d) The items on the Left Hand Side in the capital account are capital imports and represent an inflow of foreign exchange. The items on the Right Hand Side are capital exports and reflect a use of foreign exchange. One could, if one wished, present net flows of capital: Net inflows (or imports of capital) would be added, Net outflows (or export of capital) would be subtracted.

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  eBook - ePub

  International Financial Transactions and Exchange Rates

  Trade, Investment, and Parities

  • I. Kallianiotis(Author)
  • 2013(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  CHAPTER 1 The Balance of Payments and Exchange Rate

  In our open economies, domestic residents can engage in a variety of international transactions involving the purchase or sale of goods, services, and assets. US residents buy European cars and US airplane manufacturers sell commercial jets to Australian airlines. Vineyards in California purchase the services of Mexican workers, while American universities sell their educational services to Saudi Arabian students. At the same time, US investors open Swiss bank accounts, and US multinational corporations are raising funds by selling stocks and bonds to foreign investors (Chinese and Japanese). These are the legal transactions that the balance of payments (BoP) intends to register. BoP accounts are an accounting record of all monetary transactions that have taken place during a given period between a country and the rest of the world.1

  These transactions include payments for the country’s exports and imports of goods, services, financial capital, and financial transfers. The BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency of the country concerned. The BoP accounting system reveals whether countries are in surplus or deficit on trade or capital transactions with the rest of the world. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or investment in foreign countries, are recorded as negative or deficit items.

  When all components of the BoP accounts are included, they must sum to zero with no overall surplus or deficit (BoP = 0). Thus, the BoP is always in balance. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways, such as by funds earned from its foreign investments, by running down central bank reserves, or by receiving loans from other countries.

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  International Economics & Trade

  • (Author)
  • 2014(Publication Date)
  • Orange Apple

    (Publisher)

  Historically there have been different approaches to the question of how to correct imbalances and debate on whether they are something governments should be concerned about. With record imbalances held up as one of the contributing factors to the financial crisis of 2007–2010, plans to address global imbalances are now high on the agenda of policy makers for 2010. Composition of the balance of payments sheet Standard definition Since 1974, the two principal divisions on the BOP have been the current account and the capital account. The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. It is the sum of the balance of trade (net earnings on exports – payments for imports) , factor income (earnings on foreign investments – payments made ____________________ WORLD TECHNOLOGIES ____________________ to foreign investors) and cash transfers. Its called the current account as it covers transactions in the here and now - those that don't give rise to future claims. The capital account records the net change in ownership of foreign assets. It includes the reserve account (the international operations of a nation's central bank), along with loans and investments between the country and the rest of world (but not the future regular repayments / dividends that the loans and investments yield, those are earnings and will be recorded in the current account). Expressed with the standard meaning for the capital account , the BOP identity is: The balancing item is simply an amount that accounts for any statistical errors and make sure the current and capital accounts sum to zero. At high level, by the principles of double entry accounting, an entry in the current account gives rise to an entry in the capital account, and in aggregate the two accounts should balance.

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  International Macroeconomics

  • Harms, Philipp(Authors)
  • 2016(Publication Date)
  • Mohr Siebeck

    (Publisher)

  15 Chapter II The Balance of Payments II.1 Definitions and Rules II.1.1 Overview The balance of payments reports all economic transactions that take place be-tween domestic and foreign residents during a specific time period. While bal-ance of payments data as such do not reveal any causal mechanisms, a firm grasp of the definitions and structural relationships of this accounting frame-work is of crucial importance for a correct interpretation and, ultimately, expla-nation of observed phenomena. This is why this book starts with an introduction to the most important principles underlying the balance of payments. 1 The transactions reported in the balance of payments may be subdivided into three basic categories: the first group comprises transactions reflecting the in-ternational trade in goods and services , as well as payments associated with the supply of factors of production (e.g. capital or labor) or financial resources , the second group of transactions reflects international transfers , i.e. the provi-sion of resources that is not associated with any obvious material return, while the third category reflects the change of ownership of assets , with an “asset” representing any store of value that is associated with a claim on future pay-ments – a bond, a share in a company, but also an internationally recognized means of payment (e.g. a liquid currency like the US dollar or gold). The balance of payments consists of three accounts – the current account , the capital account , and the financial account – each of which reports a spe-cific subset of the transactions mentioned above. In what follows, we will first describe the principles according to which observed transactions are assigned to the individual balance of payments accounts. After this, we will consider how these accounts are related to each other.

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  International Financial Management

  • Geert Bekaert, Robert Hodrick(Authors)
  • 2017(Publication Date)
  • Cambridge University Press

    (Publisher)

  The fact that these surpluses and the deficit in the United States are so large has led economists and reporters alike to refer to them as “global imbalances.” To evaluate whether this moniker is accurate, you must understand how current accounts and the balance of payments evolve over time. Exhibit 4.6 Current account balances as a percentage of GDP for some emerging market countries Brazil China India Indonesia Korea Malaysia Philippines Singapore Russia Thailand 1990 –0.7 3.1 –2.4 –2.5 –0.7 –2.1 –6.1 8.0 n/a –8.3 1996 –2.8 0.8 –1.6 –2.9 –4.0 –4.4 –4.6 14.7 2.8 –7.9 2000 –3.8 1.7 –1.0 4.8 2.3 9.0 –2.9 10.8 18.0 7.6 2005 1.6 5.8 –1.2 0.5 1.4 14.4 1.9 21.8 11.1 –4.3 2010 –2.1 4.0 –2.8 0.7 2.6 10.9 3.6 23.7 4.4 3.1 2014 –3.9 3.2 –1.3 –3.0 6.3 2.1 5.5 19.1 5.4 4.4 Note: Data are from the IMF’s World Economic Outlook, April 2015. 4.3 The Dynamics of the BOP 145 4.3 The Dynamics of the BOP Now that you understand the meaning of the surpluses and deficits on various sub- accounts of a country’s BOP, it is time to reflect on the economic importance of these surpluses and deficits. For example, the experience of Southeast Asia in the late 1990s shows how large current account deficits led to an accumulation of foreign debt that eventually became unsustainable and led to currency crises in Thailand, Malaysia, Indonesia, and South Korea. We leave the discussion of these currency crises to Chapter 10; here we discuss how current account deficits today affect the balance of payments in the future and ultimately the country’s debt position relative to the rest of the world. The Trade Account and the Investment Income Account In Exhibits 4.1 and 4.4, we intentionally lumped in the current account all the items other than those associated with flows of investment income into what can be called the trade account of the BOP. The flows of payments that service assets and liabilities were put into the international investment income account.

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  Introduction to International Economics

  • Henk Jager, Catrinus Jepma(Authors)
  • 2017(Publication Date)
  • Red Globe Press

    (Publisher)

  CHAPTER 11 The Balance of Payments and the Foreign-Exchange Market 11.1 Introduction A country’s balance of payments is a summary of the economic transactions between that country and the rest of the world over a particular period of time – usually a month, a quarter, or a year. These transactions are classified into homogeneous groups. The main classification of the balance of payments is into two accounts: (i) the current account , which records the transactions associated with the international trade in goods and services, and (ii) the financial account , which shows all international capital transactions. The main sub-division of the financial account is that between long-term and short-term capital flows, which reflects the underlying idea that long-term flows are much more stable over time than short-term flows. One of the most notorious of all short-term flows is speculative capital, so-called ‘hot’ money, the enormous funds that can flow in and out of economies almost instanta-neously. The growth in these flows is believed to have had a destabilizing effect on national economies and has been the subject of much criticism during the currency crises since 1990. Although the balance of payments is drawn up for a single country, it is of course possible – and may be useful – to consolidate balances of payments for a group of countries. One important recent example is the combined balance of payments for the Euro area – those European countries that have adopted a common currency, the euro. For the purpose of statistical processing it is necessary to have a detailed knowledge of how transactions are recorded on the balance of payments. Of course, this knowledge is also required, if in less detail, for a proper analysis of a country’s balance of payments or an international comparison of balance-of-payments positions.

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  International Economics

  Global Markets and International Competition

  • Henry Thompson(Author)
  • 2000(Publication Date)
  • WSPC

    (Publisher)

  The world is becoming more integrated 364 Chapter 10 Balance of Payments economically, both in trade and finance. Countries find themselves more dependent on each another with international integration. In some countries a daily movement in the exchange rate can affect the decision to buy groceries today or wait until tomorrow. Exchange rates are not so apparently crucial in the US, but they regularly make the evening news, have an impact on profit in many industries, affect the price of new cars and other goods, and influence the level of foreign travel. The next chapter studies the foreign exchange market. Key Terms Active versus passive policy Direct investment (DI) Balance of payments (BOP) Fiscal and monetary policy Balance of trade (BOT) Government bonds Balance on goods and services (BGS) Import elasticity Business cycles Inflation Capital account (KA) Net investment income (Nil) Current account (CA) Portfolio investment (PI) Debt and equity Trade in services (TS) KEY POINTS • International excess supply and excess demand are constantly changing, creating adjustments in prices and the levels of imports and exports. Import elasticities determine how price changes affect the BOT. • The BOP reflects international transactions for current expenditure in the CA and investment in the KA. A country with a CA deficit must have a KA surplus. • CA deficits are not a cause for alarm. Growing countries typically assume debt to acquire the capital to produce more income. • Government deficit spending reduces private spending and creates inflation. Fiscal policy and monetary policy are not efficient tools to influence inter-national trade or finance. REVIEW PROBLEMS 1. Predict what will happen to foreign excess demand when lower prices are expected for home exports due to improved technology in their production abroad. What will happen to international prices, the level of exports, and export revenue? 2.

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  Introduction to International Economics

  • Dominick Salvatore(Author)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  In Section 10.3 we present some balance of payments accounting principles. Section 10.4 explains the meaning of double-entry bookkeeping that is used in measuring the balance of payments. Section 10.5 presents and analyzes the international transactions of the United States for the year 2009. Section 10.6 examines accounting Chapter Ten Balance of Payments 259 balances and disequilibrium in the international transactions of the United States. Section 10.7 then examines the concept and measurement of a balance- of-payments deficit or surplus. Section 10.8 briefly reviews the postwar balance-of-payments history of the United States. Finally, Section 10.9 examines the international investment position of the United States. 10.2 THE BALANCE OF PAYMENTS: DEFINITION AND USE The balance of payments is a summary statement in which, in principle, all Balance of pay- ments A summary statement of all the transactions of the residents of a nation with the rest of the world during a par- ticular period of time, usually a year. the transactions of the residents of a nation with the residents of all other nations are recorded during a particular period of time, usually a calendar year. The United States and some other nations also keep such a record on a quarterly basis. The main purpose of the balance of payments 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. Governments also regularly consult the balance of payments of important trade partners in making policy decisions. The information contained in a nation’s balance of payments is also indispensable to banks, firms, and individuals directly or indirectly involved in international trade and finance. The definition of the balance of payments just given requires some clarification.

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  eBook - ePub

  External debt : Definition, Statistical Coverage and Methodology

  • International Monetary Fund(Author)
  • 1988(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  8 . The Fund’s money and banking statistics specifically exclude equity-type liabilities from foreign liabilities. The IBS, however, may include some amount of equities as a number of reporting countries include equities among their financial claims on other countries.

  2.4.4.2. Leasing

  According to the BOP methodology, a lease arrangement expected to cover at least 75 per cent of the cost of the goods, together with the carrying charges, is a financial lease, i.e., this is presumptive evidence of a financing arrangement which is equivalent to a change of ownership. (For further details, see Section 2.1.2.1 of Chapter III ).

  2.4.4.3. Loans Repayable in Local Currency

  Loans repayable in local currency are generally included in the external debt measure of the Fund. However, there are some special problems with respect to the classification of counterpart funds. In a number of instances, donor governments provide assistance to developing countries in the form of commodities which are sold in the local market. The local currency balances that are generated by these sales are often deposited with the central bank under the joint control of the donor and recipient governments, frequently with substantial restrictions on how they may be spent. These deposits present some problems with respect to classification as external debt or restricted domestic deposits. The BOP statistics treat the original transfer of the goods as a loan, unless there is clear evidence that the transaction is in fact an unrequited transfer. It is normal practice in money and banking statistics to treat the balances with the central bank as neither a foreign liability to the donor government nor a domestic deposit of the recipient government as long as there is joint control. The balances are, where important, classified separately. The GFS do not record the deposits when they are generated, but record withdrawn funds as grants or loans at the time of withdrawal, depending on whether the transaction must be repaid.

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  International Economics

  • Dominick Salvatore(Author)
  • 2019(Publication Date)
  • Wiley

    (Publisher)

  To the extent that foreign investments went into directly productive activities with returns greater than the interest and dividend payments flowing to foreign investors, this investment was beneficial to the United States. Furthermore, the portion of foreign investments that simply went to finance larger U.S. consumption C A S E S T U DY 1 3 - 4 The United States as a Debtor Nation (Continued) 360 Chapter 13 Balance of Payments S U M M A R Y 1. The balance of payments is a summary statement of all the transactions of the residents of a nation with the rest of the world during a particular period of time, usually a year. Its main purpose is to inform monetary authorities of the international position of the nation and to aid banks, firms, and individuals engaged in international trade and finance in their business decisions. 2. The balance of payments is subdivided into the current, capital, and financial accounts. Current account transactions include exports and imports of goods and services, pri- mary (investment) and secondary (current transfers) income receipts (credits) and payments (debits). Capital account transactions refer to the acquisition or disposal of nonpro- duced nonfinancial assets and capital transfer receivable (credit) or payable (debit). Net lending occurs when total credits exceed the total debits. Net borrowing is the oppo- site. Financial account transactions include the net acquisi- tion of financial assets, net incurrence of foreign liabilities, and net financial derivative transactions. Net lending occurs when the net acquisition of financial assets exceeds the net incurrence of liabilities. The opposite is net borrowing. Offi- cial reserve assets include gold, Special Drawing Rights, the reserve position in IMF, and foreign currency holdings of the nation’s monetary authorities. 3. In 2017, U.S. exports of goods and services, as well pri- mary and secondary income receipts amounted to $3,433 billion, while U.S.

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  International Economics

  • Dominick Salvatore(Author)
  • 2020(Publication Date)
  • Wiley

    (Publisher)

  To the extent that foreign investments went into directly productive activities with returns greater than the interest and dividend payments flowing to foreign investors, this investment was beneficial to the United States. Furthermore, the portion of foreign investments that simply went to finance larger U.S. consumption C A S E S T U DY 1 3 -4 The United States as a Debtor Nation ( Continued ) 360 Chapter 13 Balance of Payments S U M M A R Y 1. The balance of payments is a summary statement of all the transactions of the residents of a nation with the rest of the world during a particular period of time, usually a year. Its main purpose is to inform monetary authorities of the international position of the nation and to aid banks, firms, and individuals engaged in international trade and finance in their business decisions. 2. The balance of payments is subdivided into the current, capital, and financial accounts. Current account transactions include exports and imports of goods and services, pri-mary (investment) and secondary (current transfers) income receipts (credits) and payments (debits). Capital account transactions refer to the acquisition or disposal of nonpro-duced nonfinancial assets and capital transfer receivable (credit) or payable (debit). Net lending occurs when total credits exceed the total debits. Net borrowing is the oppo-site. Financial account transactions include the net acquisi-tion of financial assets, net incurrence of foreign liabilities, and net financial derivative transactions. Net lending occurs when the net acquisition of financial assets exceeds the net incurrence of liabilities. The opposite is net borrowing. Offi-cial reserve assets include gold, Special Drawing Rights, the reserve position in IMF, and foreign currency holdings of the nation’s monetary authorities. 3. In 2017, U.S. exports of goods and services, as well pri-mary and secondary income receipts amounted to $3,433 billion, while U.S.

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  21st Century Economics: A Reference Handbook

  • Rhona C. Free(Author)
  • 2010(Publication Date)
  • SAGE Publications, Inc

    (Publisher)

  41 BALANCE OF TRADE AND PAYMENTS LAWRENCE D. GWINN Wittenberg University T he balance of payments registers the international financial position of a country, using a double-entry bookkeeping approach to tabulate the market value of the transactions in goods, services, and financial assets between the country's residents and the residents of the rest of the world. Like gross domestic product (GDP), the balance of payments encompasses transactions in goods and services produced during the year, but, unlike the GDP, the balance also encompasses transactions in assets. In addition to categorizing international transac-tions as debits or credits, the balance of payments sepa-rates private transactions in goods and services into the current account and transactions in assets into the capital account. Official government transactions, undertaken to affect the exchange rate, are typically separated from private transactions in balance of payments accounting. While nations had been aware of the relationship between their exports and imports since they first coa-lesced into discernable entities and began to trade, in History of Economic Analysis (1954), Joseph Schumpeter likens the conceptualization of the balance of payments to an idea that has been vaguely known for centuries without being fully understood. Schumpeter credits Antonio Serra with having the first clear conception of the balance of payments in 1613. While Serra recognized and understood many of the mercantilist ideas, according to Schumpeter, his most important point was an understanding of the connection between a country's balance of payments posi-tion and its domestic economic situation. Schumpeter also mentions Thomas Mun (1571-1641) and other mercan-tilists as having an understanding of the balance of pay-ments, notwithstanding their misapplication of its principles to trade policy.

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