1、INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 3 The Balance of Payments (Chapter 3) McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-1 Essential Readings The Whole Chapter McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc.
2、All rights reserved. 3-2 Main Contents The Concept of Balance of Payments Balance of Payments Accounts nThe Current Account nThe Capital Account nStatistical Discrepancy nOfficial Reserves Account The Imbalance of Payments causes and the adjusting measures McGraw-Hill/Irwin Copyright 2001 by The McG
3、raw-Hill Companies, Inc. All rights reserved. 3-3 Balance of Payments Statements lThe Balance of Payments is the statistical record of a countrys international transactions over a certain period of time presented in the form of double-entry bookkeeping. N.B. when we say “a countrys balance of paymen
4、ts” we are referring to the transactions of its citizens and government. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-4 Balance of Payments Example lSuppose that Boeing Corporation exported a Boeing 747 aircraft to Japan Airlines for $50million, and that
5、 Japan Airlines pays from its dollar bank account in New York City. lThis receipt of $50million will be recorded as a credit (+), matched by a debit( -) of the same amount representing a reduction of the U.S. banks liabilities. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All
6、rights reserved. 3-5 Balance of Payments Example lSuppose that Ford acquires Jaguar, a British car manufacturer, for $700 million, and that Jaguar deposits the money in Barclays Bank in London. lIn this case, the payment of $700million will be recorded as a debit(-), whereas Barclays purchase of the
7、 US. Treasury notes will be recorded as a credit (+). McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-6 Balance of Payments Example lTransaction Credit Debit Boeings export +$50million Withdraw from US bank -$50million Fords acquisition of Jaguar -$750milli
8、on Barclays purchase of US security +$750million McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-7 Balance of Payments Example lTo make it simple, when a country records its transactions with foreign countries, the transaction which results in a foreign cur
9、rency inflow will be recorded as credit with a “+” sign. lAny transaction which results in a foreign currency outflow will be recorded as a debit with “-” sign. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-8 Balance of Payments Examples McGraw-Hill/Irwin
10、 Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-9 lThe balance of payments accounts are those that record all transactions between the residents of a country and residents of all foreign nations. lThey are composed of the following: nThe Current Account nThe Capital Account
11、 nStatistical Discrepancy nThe Official Reserves Account Balance of Payments Accounts McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-10 The Current Account lImports and exports of goods( Balance of Trade) lImports and exports of services. lFactor income lU
12、nilateral transfers If the credits exceed the debits, the country is running a trade surplus. If the debits exceed the credits, then a country is running a trade deficit. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-11 US Balance of Payments for 2009(in
13、billion USD) McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-12 J-Curve Effect McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-13 The Capital Account lThe capital account measures the difference between the country
14、s sales of assets to foreigners and the countrys purchases of foreign assets. lThe capital account is composed of : nForeign Direct Investment (FDI), nPortfolio investments nOther investments. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-14 Balance of Pa
15、yments Example McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-15 Statistical Discrepancy lTheres going to be some omissions and misrecorded transactionsso we use “Statistical Discrepancy” or “ Omissions and Error” to set it balance. McGraw-Hill/Irwin Copyr
16、ight 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-16 Official Reserve Account lThe official reserve account includes transactions undertaken by the authorities for finance the overall balance and intervene in the foreign exchange markets. McGraw-Hill/Irwin Copyright 2001 by The McG
17、raw-Hill Companies, Inc. All rights reserved. 3-17 Official Reserve Account lIn the BOP statements, the increase in Official Reserve account will be recorded as debit with “-” sign, whereas the decrease will be recorded as a credit with “+” sign. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill C
18、ompanies, Inc. All rights reserved. 3-18 The Balance of Payments Identity BCA + BKA + BRA = 0 where BCA = balance on current account BKA = balance on capital account BRA = balance on the reserves account McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-19 Th
19、e causes of Imbalance of Payments There are several major reasons for Imbalance of Payments lThe effects of Economic Development Period lNational Income lEconomic Structure lThe Currency factors lAccidental factors McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserv
20、ed. 3-20 The cause of Imbalance of Payments lThe effects of economic development period nCountries at different economical period will effect each others BOP McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-21 The cause of Imbalance of Payments lThe national
21、 income nThe increase of the national income will deteriorate one countrys BOP. nThe decrease of the national income will improve one countrys BOP. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-22 The cause of Imbalance of Payments lThe economical structu
22、re nThe economical structure includes the product structure and the industrial structure. nThe structural imbalance mainly results in the current account imbalance. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-23 The causes for Imbalance of Payments lThe
23、 currency factors nThe change of one countrys price, cost , exchange rate and interest rate will affect one countrys balance of payments. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-24 The cause of Imbalance of Payments lThe accidental factors nThe chan
24、ge of one countrys government would likely cause the inflow or outflow of the capital. nThe natural disaster will also increase the imports of certain commodities or exports of other commodities. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-25 The Influe
25、nces of the Imbalance of Payments lThe Influences of the BOP Deficit nThe BOP deficit means the more capital outflow than the capital inflow, thus it would increase the demand of the foreign currency,bringing out the depreciation of one countrys currency. nIf the imbalance of the BOP is caused by th
26、e current account deficit, the economic development will slows down and unemployment will increase. nIf the imbalance of the BOP is caused by the capital account deficit, it will increase the interest level, slows down the economy development. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Comp
27、anies, Inc. All rights reserved. 3-26 The Influences of the Imbalance of Payments lThe Influences of the BOP Surplus nUnder the BOP surplus, one countrys currency will face more appreciation pressure. nIf the government intervenes by selling the countrys currency, it will increase the currency suppl
28、y and leads to inflation. nIf the surplus is resulted from trade surplus,revenge will be imposed by other countries. nIf the surplus is resulted from capital account surplus, it would likely cause debt crisis if the foreign capital is not well managed. McGraw-Hill/Irwin Copyright 2001 by The McGraw-
29、Hill Companies, Inc. All rights reserved. 3-27 Balance of Payments Trends lSince 1982 the U.S. has experienced continuous deficits on the current account and continuous surpluses on the capital account. lDuring the same period, Japan has experienced the opposite. 3-27 McGraw-Hill/Irwin Copyright 200
30、1 by The McGraw-Hill Companies, Inc. All rights reserved. 3-28 3-28 Source: IMF, International Financial Statistics. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-29 Balance of Payments Trends lThe U.S. and the U.K. tend to realize current account deficit
31、s, whereas China, Japan, and Germany tend to realize current account surpluses. lThis “global imbalance” implies that the U.S. and U.K. generally use up more outputs than they produce, while the opposite holds for China, Japan, and Germany. 3-29 McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Co
32、mpanies, Inc. All rights reserved. 3-30 Mercantilism and the Balance of Payments lMercantilism holds that a country should avoid trade deficits at all costs, even to imposing various restrictions on imports. lMercantilist ideas were criticized in the 18th century by such British thinkers as Adam Smi
33、th, David Ricardo, and David Hume. lThey argued that the main source of wealth in a country is its productive capacity not its trade surpluses. 3-30 McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-31 The Ways to Adjust the Imbalance of Payments lFiscal Poli
34、cy nThe government adopts tax refunding policy to encourage export. nThe government affects the BOP through fiscal expenditure policies. lCurrency Policy nThe reserve ratio policy nThe discount policy nThe direct intervention. nThe forex exchange policy McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 3-32 Discussion 1. Since the early 1980s, foreign portforlio investors have purchased a significant portion of US treasury bonds, Discuss the short term and long term effects on the U.S.Balance of Payments.
