...Chapter 03 Balance of Payments True / False Questions 1. Over half of all dollar bills in circulation are held outside American's borders. True False Multiple Choice Questions 2. The current account balance, which is the difference between a country's exports and imports, is a component of the country's GNP. Other components of GNP include A. consumption and investment and government expenditure. B. consumption and government expenditure and net exports. C. consumption and net exports and government expenditure. D. consumption less imports. 3. If the United States imports more than it exports, then this means that A. the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus. B. the demand for dollars is likely to exceed the supply in the foreign exchange market, ceteris paribus. C. the U.S. dollar would be under pressure to appreciate against other currencies. D. both b) and c) are correct 4. Balance of payments A. is defined as the statistical record of a country's international transactions over a certain period of time presented in the form of a double-entry bookkeeping. B. provides detailed information concerning the demand and supply of a country's currency. C. can be used to evaluate the performance of a country in international economic competition. D. all of the above 5. If a country is grappling with a major balance-of-payment difficulty, it may not be...
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...Components of Balance of Payments Balance of Payments is generally grouped under the following heads i) Current Account ii) Capital Account iii) Unilateral Payments Account iv) Official Settlement Account. Current Account “The Current Account includes all transactions which give rise to or use up national income.” The Current Account consists of two major items, namely: i) Merchandise exports and imports, and ii) Invisible exports and imports. Merchandise exports, i.e., the sale of goods abroad, are credit entries because all transactions giving rise to monetary claims on foreigners represent credits. On the other hand, merchandise imports , i.e., purchase of goods from abroad, are debit entries because all transactions giving rise to foreign money claims on the home country represent debits. Merchandise imports and exports form the most important international transaction of most of the countries .Invisible exports, i.e., sales of services, are credit entries and invisible imports, i.e. purchases of services, are debit entries. Important invisible exports include the sale abroad of such services as transport, insurance, etc., foreign tourist expenditure abroad and income paid on loans and investments (by foreigners)in the home country form the important invisible entries on the debit side. Capital Account The Capital Account consists of short- terms and long-term capital transactions A capital outflow represents a debit and a capital inflow represents...
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...| | | SCHOOL OF BUSINES Project on: Balance of Payments Prepared By: Hassan ajami, Mansour daher, reda younes,ali Mohsen, Mohammad kanso Submitted To: Dr. habib awada Course BFIN 430 (International Banking & Finance). Spring 2013-2014 TABLE OF CONTENTS 1- INTRODUCING THE BOP CONCEPT: 1.1) Brief History 5 1.2) Basic Definition 5 1.3) System of Recording 7 1.3.1) Identifying Transactions 7 1.3.2) The Debit & Credit System 9 2- GENERAL STRUCTURE OF THE BOP: 2.1) Main Components 12 2.1.1) Current Account 12 2.1.2) Trade Balance 15 2.1.3) Capital Account 16 2.1.4) Financial Account 18 2.1.5) Errors & Omissions 22 2.2) Complications 23 2.2.1) Accounts Interrelation 23 2.2.2) Deficit & Surplus Dilemmas 25 3- BOP FROM EQUILIBRIUM TO DISEQUILIBRIUM 3.1) BOP in Equilibrium 27 3.1.1) Equilibrium Conditions 27 3.1.2) Equilibrium Model 27 3.1.3) Types of Equilibrium 29 3.2) BOP in Disequilibrium 29 3.2.1) Causes of Disequilibrium 29 3.2.2) Types of Disequilibrium 32 3.2.3) Consequences of Disequilibrium 33 3.2.4) Measures to Eliminate Disequilibrium 33 3.2.5) Demonstrating Disequilibrium 35 4- STUDYING THE LEBANESE BOP 4.1) Historical Events: 1999 and before 37 4.2) Major Events of the Decade: 2000-2008 38 4.3) Recent Events: 2009-2010 40 5- CONCLUSION Importance of BOP 44 1- INTRODUCING...
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...Introduction to Balance of payments The Balance of Payments (BOP) is a measure of all the financial transactions flowing between one country and all other countries during a specific period, usually a quarter or a year. It is also the name of the official record of these transactions. A positive, or favorable, balance of payments is one in which more payments have come in to a country than have gone out. A negative or unfavorable balance means more payments are going out than coming in. The BOP is a major indicator of a country's status in international trade, and a reflection of its economic well-being or vulnerability. The balance of trade is one component of the balance of payments. It is also a sign of the productiveness of a people and a reflection of whether they are primarily producers or consumers. Producing nations grow while consuming nations eventually deplete their resources and collapse as fewer people are able to access them. IMF Definition The IMF definition: "Balance of Payments is a statistical statement that summarizes transactions between residents and nonresidents during a period. The balance of payments comprises the current account, the capital account, and the financial account. "Together, these accounts balance in the sense that the sum of the entries is conceptually zero." The current account consists of the goods and services account, the primary income account and the secondary income account. The financial account records transactions that...
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...MANAGEMENT ASSIGNMENT ON BALANCE OF PAYMENTS ) INDEX S No | Particular | Page | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | WHAT IS BALANCE OF PAYMENT? The balance-of-payments accounts of a country record the payments and receipts of the residents of the country in their transactions with residents of other countries. If all transactions are included, the payments and receipts of each country are, and must be, equal. Any apparent inequality simply leaves one country acquiring assets in the others. For example, if INDIANS buy automobiles from Japan, and have no other transactions with Japan, the Japanese must end up holding RUPEES, which they may hold in the form of bank deposits in INDIA or in some other INDIAN investment. The payments Indians make to Japan for automobiles are balanced by the payments Japanese make to Indians. individuals and institutions, including banks, for the acquisition of Rupee assets. Put another way, Japan sold India automobiles, and INDIA sold Japan rupees or Rupee-denominated assets such as treasury bills . Although the totals of payments and receipts are necessarily equal, there will be inequalities—excesses of payments or receipts, called deficits...
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...Balance of Payments The balance of payments is the sum of all transaction that Australia has with the rest of the world. These figures are presented in two accounts- the current account and the capital and financial account. The capital and financial account are comprised of reversible transactions while the current account covers external transactions that are non- reversible. The balance of payments always balances but since the 1980s, Australia has persistently experienced a large Current Account Deficit (CAD). The balance of payments is based on a double entry system (ie credits and debits) of ledger accounts known as the current account and the capital and financial account. Current Account The current account records all transactions of a current nature involving money received (income) and money spent (expenditure) for M and X of g/s, income and transfers. These transactions are non-reversible (money has either been received or spent) ------------------------------------------------- BOGs- Balance on god and services ------------------------------------------------- -Shows aussie X/M patterns Goods * Exports (goods credits) and imports (goods debits) * X divided into rural and non rural * M classified as consumption, capital or intermediate * Tangibles Services * Exports (credits) and imports (debits) * Tourism, education, shipping, finance * Intangibles Net income * Income received from aussie owned assets...
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...SubjecT: - INTERNATIONAL FINANCE Assignment ON:-BALANCE OF PAYMENT Submmited TO:-prof. NEETU SHARMA Submmietd by YASHWANT MULUK ROLL No: 25 Definition of 'Balance Of Payments - BOP' A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa. Balance of payments may be used as an indicator of economic and political stability. For example, if a country has a consistently positive BOP, this could mean that there is significant foreign investment within that country. It may also mean that the country does not export much of its currency. This is just another economic indicator of a country's relative value and, along with all other indicators, should be used with caution. The BOP includes the trade balance, foreign investments and investments by foreigners. COMPARATIVE ANALYSIS OF BALANCE OF INDIAN PERSPECTIVE Uses of funds, such as for imports or to invest 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. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have...
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...THE BALANCE OF PAYMENTS ALWAYS BALANCES Economic Concepts Balance of payments Capital account Current account Financial assets Trade deficit Trade surplus Content Standards Standard 5: Students will understand that: Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations. • Students will be able to use this knowledge to: Negotiate exchanges and identify the gains to themselves and others. Compare the benefits and costs of policies that alter trade barriers between nations, such as tariffs and quotas. Benchmarks, Grade 12: At the completion of grade 12, students will know • A nation pays for its imports with its exports. Lesson Overview Balance of payments accounting is an often misused and misunderstood tool for keeping track of our economy’s flow of imports and exports. While the data, itself, is neutral, it is sometimes reported in ominous tones, especially when the numbers total up to a deficit in the merchandise account. As students learn more about trade, they appreciate that a trade deficit is not necessarily bad any more than a trade surplus is necessarily good. This lesson reinforces their appreciation of that reality by identifying the components of the balance of trade. Learning about the flow of financial assets captured in the...
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...DEFINITION OF 'BALANCE OF PAYMENTS (BOP)' A statement that summarizes an economy’s transactions with the rest of the world for a specified time period. The balance of payments, also known as balance of international payments, encompasses all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts. The balance of payments classifies these transactions in two accounts – the current account and the capital account. The current account includes transactions in goods, services, investment income and current transfers, while the capital account mainly includes transactions in financial instruments. An economy’s balance of payments transactions and international investment position (IIP) together constitute its set of international accounts. Ads * Reliance Life Insurance reliancelife.com/Insurance_Premium 1Cr Cover @ Rs450 or 50 Lac @ Rs253 Per month, Policy Term up to 35 yrs * Chennai Office Space regus.co.in/Chennai_Office_Space Flexible Office to Suit Your Needs. in Prime Locations+IT+Receptionist. INVESTOPEDIA EXPLAINS 'BALANCE OF PAYMENTS (BOP)' Despite its name, the “balance of payments” data is not concerned with actual payments made and received by an economy, but rather with transactions. Since many international transactions included in the balance of payments do not involve the payment of money, this figure may differ significantly...
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...International Finance Dr. Angela Ng FINA 342 HKUST Class Notes 2 BALANCE OF PAYMENTS (BOP) WHAT IS THE BALANCE OF PAYMENTS? An accounting statement that summarizes the economic transactions between residents of a home country and residents of all other countries. BOP is based on double-entry bookkeeping. Every transaction is recorded twice, once as a debit and once as a credit. According to accounting convention, a source of funds (either a decrease in assets or an increase in liabilities) is a credit and a use of funds (either an increase in assets or a decrease in liabilities) is a debit. Inflows are reported with a positive sign and are listed as a credit. Outflows are reported with a negative sign and are reported as a debit. Three major BOP categories: – Current Account: records flows of goods, services, and transfers. – Capital Account: shows public and private investment and lending activities. – Official Reserves Account: measures changes in holdings of gold and foreign currencies by official monetary institutions. By definition, the overall BOP must balance. (Current account balance) + (Capital account balance) ( (Official reserves account) = BOP = 0 BOP is related to the foreign exchange market. All transactions that affect the inflows and outflows of foreign currency are recorded in the BOP. Exhibit 2.1 Balance of Payments Categories |Credits (+) ...
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...1. What is the investment income account of the balance of payments? Investment income account includes: a. Direct foreign investment (Investment in fixed assets in foreign countries that can be used to conduct business operations to earn revenue.) b. Portfolio investment (Investment in long-term financial assets like stocks and bonds to earn dividends or interests between countries that do not affect the transfer of control.) c. Other capital investment (Investment in short-term financial assets like money market securities between countries to earn interests.) 2. What is the official settlements account of the balance of payments? How are official settlements deficits and surpluses associated with movements in the international reserves of the balance of payments? Official settlement account is the sum of the current account, the capital account, the non-reserve financial account, and the statistical discrepancy. Official settlements offset international reserves. Official settlements surplus increase official reserve assets. Official settlements deficits decrease official reserve assets. 3. Explain why private national saving plus government saving equals the current account of the balance of payments. a. National income on expenditure = C+I+G+X-M b. National income on disposal = C+S+T c. Because expenditure = disposal, therefore C+I+G+X-M=C+S+T d. We can see X-M=(S-I)+(T-G) e. So Current asset equals to private national saving...
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...BALANCE OF PAYMENTS: Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The Balance of payments accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. 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 to invest in foreign countries, are recorded as negative or deficit items. According to ‘American Heritage Dictionary’: Balance of payments is a systematic record of a nation's total payments to foreign countries, including the price of imports and the outflow of capital and gold, along with the total receipts from abroad, including the price of exports and the inflow of capital and gold. According to ‘Oxford Dictionary of Geography’: Balance of payments is a comparison between the payments made by one country to other nations of the world and the revenue it receives from them. If receipts exceed outgoings, the balance is positive. The capital account records payments made in settlement of old debts or establishment of new ones; the current account shows payments made on goods and services, including interest payments...
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...| 2012 | 2013 | 2014 | Current Account Goods Services Maintenance and repairs Services Transport Travel Construction Insurance and pension services Financial Services Charges for the use of intellectual property Telecommunications, computer and information services Other business services Personal, cultural & recreational services Government goods & service Primary income Secondary incomeCapital Account Acquisitions/disposal of non-produced non-financial assets Capital transfersFinancial Account Direct investment Portfolio investment Financial derivatives Other investmentReserve AssetsStatistical Discrepancy | 57,348125,614-14,003101-28,01226,893-3,202-1,273-697-4,317221-1,994-1,309-415-36,024-18,239159252-93-23,037-21,74858,388954-60,632-3,873-30,579 | 39,907108,230-16,693------------34,126-17,504-20.9---15,807-5,450-3,041-253-7,062-14,649-9,430.1 | 49,508125,064-20,546------------37,390-17,619280.6---76,495-17,101-37,867-975-20,55336,338-9,631.6 | Balance of Payment for Malaysia from 2012-2014 (in RM Million) (Taken from website of Department of Statistics Malaysia Official Portal) The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar year. All trades conducted by both the private and public sectors are accounted...
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...------------------------------------------------- Balance of payments From Wikipedia, the free encyclopedia Balance of payments (BoP) accounts are an accounting record of all monetary transactions 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 for the country concerned. Sources of funds for a nation, such as exports or the receipts ofloans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest 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. 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. While the overall BOP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account, the capital account excluding the central bank's reserve account, or the sum of the two. Imbalances in...
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...Balance of Trade and Balance of Payment with a special reference of Bangladesh Introduction Bangladesh is one of the fastest growing economic countries among the LDC’s country. According to the International Monetary Fund, Bangladesh ranked as the 42rd largest economy in the world in 2011 in PPP terms and 57th largest in nominal terms, among the Next Eleven or N-11 of Goldman Sachs and D-8 economies, with a gross domestic product of US$269.3 billion in PPP terms and US$104.9 billion in nominal terms. The economy has grown at the rate of 6-7% per annum over the past few years. More than half of the GDP is generated by the service sector; while nearly half of Bangladeshis are employed in the agriculture sector. Other goods produced are textiles, jute, fish, vegetables, fruit, leather and leath An easy way to understand any country's economic scenario is through its Balance of Trade (BOT) and Balance of Payment (BOP) figures. Balance of Trade shows the difference between the total amount of incoming and outgoing currencies through import and export. Balance of Payment (BOP) is a summary of economic activities between the residents of a country and the rest of the world during a given period, usually one year. The main purpose of keeping these records is to inform government authorities about the overall international economic position of the country in order to assist them in arriving at decisions on monetary and fiscal policy, on the one hand, and trade and payments policy...
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