...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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...Examine India’s balance of payments in the last two decades. What have been the trends in terms of merchandise trade, invisibles and capital flows? 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 for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and, if a country has paid or given money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance. But in practice this is rarely the case and, thus, the BOP can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming. DIVISION OF BALANCE OF PAYMENTS The BOP is divided into three main categories: the current account, the capital account and the financial account. Within these three categories are sub-divisions, each of which accounts for a different type of international monetary transaction. The Current Account The current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account. Within the current account are credits and...
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...Balance of payment of Nepal The balance of payments account is a systematic record of all the transactions of a country’s inhabitants with the rest of the world over a given period of time. All transactions must be recorded somewhere. The IMF publishes a Balance Of Payments manual to standardize all balances of payments, and it contains the rules about which transactions are allowed. A favorable balance of payments usually implies a surplus which means that more funds are flowing in than leaving. Every transaction is recorded twice, once as a credit and once as a debit. A key point to remember about the balance of payments account is that the value of all the transactions must sum to zero. The balance of payments account consists of the following components: • Current Account • Capital Account Current Account The Current Account includes all transactions which give rise to or use up national income. The current account has four components: • The balance on goods, which records exports and imports of physical, relocatable merchandise. The export of betel nut, for example, brings in a credit, while the import of cars creates a debit. • The balance on services, which records transactions relating to the provision of non-physical items such as transport, travel and insurance. • The balance on investment income, which records dividends and interest payments that Nepalese earn on assets held overseas, and also payments to foreign residents on assets held in Nepal. •...
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...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 for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and if a country has paid or given money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance, but in practice this is rarely the case. Thus, the BOP...
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...BALANCE OF PAYMENTS Monaco’s economy is motivated by foreign currency-earning activities which include; banking and tourism. Monaco doesn’t keep record of its foreign trade transactions hence; payment statistics are not very accurate. However, the United Nations Statistics Division estimated the exports and imports of goods and services in Monaco, based on a closed observation and comparison of France statistical data. Consequently, exports amounted to $299 million in 2004, a rise from $257 million in 2003 and $219 million in 2002. Imports increased from $205 million in 2002, to $246 million in 2003, and $296 million in 2004. Subsequently, Monaco has managed to keep a positive resource balance over the years. In 2000, Monaco had an external debt estimate of about $18 billion—this is a quiet god figure given that the country is not big at all. Before 2014, Monaco’s balance of payments (BoP) and international investment position (IIP) were hoarded according to the fifth edition of the Balance of Payments Manual, which sets the international standards for BoP and IIP statistics and is released under the aegis of the International Monetary Fund. Since January 2014, implemented a methodology of the Eurosystem's and European Union's statistical framework. The ECB and Eurostat publish b.o.p. and i.i.p. data and international reserves statistics in accordance with BPM6, methodology in the final quarter of 2014. The table below presents the balance of payment data for Monaco ...
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...CHAPTER 4 BALANCE OF PAYMENTS 4.1. Balance of Payments (BoP) statistics systematically summaries the economic transactions of an economy with the rest of the World for a specific period. The Reserve Bank of India (RBI) is responsible for compilation and dissemination of BoP data. BoP is broadly consistent with the guidelines contained in the BoP Manual of the International Monetary Fund. 4.2. Balance of payment (BoP) comprises of current account, capital account, errors and omissions and changes in foreign exchange reserves. Under current account of the BoP, transactions are classified into merchandise (exports and imports) and invisibles. Invisible transactions are further classified into three categories, namely (a) Services-travel, transportation, insurance, Government not included elsewhere (GNIE) and miscellaneous (such as, communication, construction, financial, software, news agency, royalties, management and business services); (b) Income; and (c) Transfers (grants, gifts, remittances, ets.) which do not have any quid pro quo. 4.3. Under the Capital Account, capital inflows can be classified by instrument (debt or equity) and maturity (short or longterm). The main components of the capital account include foreign investment, loans and banking capital. Foreign investment, comprising Foreign Direct Investment (FDI) and Portfolio Investment consisting of Foreign Institutional Investors (FIIs) investment, American Depository Receipts/Global Depository Receipts (ADRs/GDRs)...
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...7 Balance of Payments 7.1 Global Economic Review The global economy was facing two major threats at the start of FY13: the possible demise of the Euro, and a big fiscal contraction in the US, caused by the ‘fiscal cliff’.1 However, timely policy actions were taken to address these issues. In the EU, for instance, Outright Monetary Transactions (OMTs) were launched to lower the long-term yields on sovereign bonds; there was a restructuring deal of Greek public debt; and the agreement on Single Supervisory Mechanism (SSM) was reached, to help restore confidence in the viability of the European Union.2 Similarly in the US, a partial extension of Bush tax cuts was given under the American Taxpayer Relief Act 2012 (ATRA), to eliminate the revenue side of the fiscal cliff.3 Although these policy measures were able to restore some business confidence, these were, nonetheless, insufficient to pace up the economic recovery (Figure 7.1). In the EU, growth was constrained by fiscal consolidation; deleveraging; and tight credit conditions to repair balance sheets by financial institutions and households. In the US, growth remained lackluster throughout 2012 and early 2013, despite a pick-up in credit and housing following the launch of the third round of quantitative easing (QE3) in September 2012.4 Figure 7.1: Global GDP Growth World Emerging economies 8 6 percent Advanced economies 4 2 0 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 Source: World Economic...
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...to monitor all international monetary transactions during a specific time frame, countries use a method called the “balance of payments”. According to McEachern (2010), “The balance of payments measures economic transactions between a country and the rest of the world, whether these transactions involve goods and services, real and financial assets, or transfer payments” (p. 274). The method used is called “double-entry bookkeeping” with credits and debits. Any deficits in one area must be offset by a surplus in one of the others. Credits must equal debits, hence a balance of payments. There are two major categories in the balance of payments, one is the current account and it is comprised primarily of three components. The Balance on Goods and Services contains the merchandise account, which reflects trade in goods, or tangible products. It is usually just called the trade balance. The difference between what we import and what we export. The other part deals with services, which are the intangibles or, invisibles” as they are sometimes referred to. These are things like education, transportation, insurance, banking, and tourism. And these all have credits and debits since we both import and export them. Another component is Net Investment Income, and is what is earned by U.S. residents from assets owned abroad. This is a credit to the balance of payment account. Debits here are from foreigners earning investment income from assets they own in the United States. The last...
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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...
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...| Mini Case for Chapter 3 | Mexico’s Balance-of-Payments Problem | | Chapter 3 Mini-Case: Mexico’s Balance of Payments Problem The term balance of payments refers to the accounting record of the country’s monetary transaction with the rest of the world. These transactions include the exports and imports of goods and services of the country, financial capital and financial transfers. The balance of payment record is a way to allow countries to recognize potential business partners for trade and to evaluate a country’s performance in the global economic competition. . In this mini-case we will look into 4 key aspects such as Mexico’s key economic indicators, the causes of the country’s balance of payment problems, policies in which Mexico could have implemented in order to avoid the problems and the lessons in which developing countries can learn from this incident. Through these 4 key aspects, the reader would be able to gain a better understanding about Balance of Payments concepts. Trend in Mexico’s key economic indicators: balance of payments, exchange rate, and foreign reserve holdings. Yr | Balance of Trade | Current Account | Direct Foreign Investment | Portfolio Investment | Gross International Reserves | Total External Debt | Public Sector External Debt | Interest Payments | 1994 | -18.5 | -29.7 | 6.1 | 8.2 | 6.1 | 142.2 | 85.4 | 11.8 | 1995 | 7.1 | -1.6 | 15.7 | -9.7 | 15.7 | 169.9 | 100.9 | 13.6 | Mexico’s current account deficit...
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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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...Explain what is meant by the term Balance of Payments Deficit on the Current Account and Explain the Measures that could be taken to Reduce this Deficit The balance of payments records all financial tractions made with foreigners over a period time made between consumers, businesses and the government. The current account of the balance of payments compromises the balance of trade in goods and services plus net investment incomes from overseas assets and net transfers. In 2012, the UK’s current account balance of payments deficit was £59.8 billion. The government is always attempting to introduce measures in order to reduce the balance of payments deficit in order to have a balance of payments surplus where exports are greater than imports. One way the government could take measures in order to decrease the deficit is by lowing the exchange rate. A depreciation in the exchange rate of sterling could help to boost the overseas demand for UK exports because as a result goods from British would be cheaper and the UK export cheaply in international markets. Therefore, Exports would increase but also this would have an effect on imports for UK consumers. As the exchange rate lowers, imported goods are more expensive to UK consumers and goods become relatively more expensive - leading to a slowdown in imported goods. However, these consequences depend on the elasticity of demand. Another way in order to reduce the balance of payments deficit is to focus more on longer term improvements...
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...Balance of payments: The balance of payments of a country is the record of all economic transactions between the residents of a country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year). These transactions are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country during a given period, usually a year. It represents a summation of country's current demand and supply of the claims on foreign currencies and of foreign claims on its currency. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. Current account:The difference between a nation’s savings and its investment. The current account is an important indicator about an economy's health. It is defined as the sum of the balance of trade, net income from abroad and net current transfers. A positive current account balance indicates that the nation is a net lender to the rest of the world, while a negative current account balance indicates that it is a net borrower from the rest of the world. A current account surplus increases a nation’s net foreign assets by the amount of the surplus, and a current account deficit decreases it by that amount. The current account and the capital account are the two main components of a nation’s balance of payments. Capital account:In macroeconomics and international...
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...Impact Assessment of Balance of payments imbalance caused due to crude oil import. A Thesis Submitted to Lahore School of Economics By Name: M. Daniyal Kamran Section B 07u0391 For Award of Degree of Bachelors of Business Administration(Honors) in (Majors) Finance (Minors) in Maths, Stats and Social Sciences Session: 2007 to 2011 Declaration This thesis contains no material, which has been accepted for the reward to the candidate of any other degree or diploma, in any university or other institution. To the best of my knowledge the thesis contains no material previously published or written by another person, except where due reference is made in the text of the thesis. ___M. Daniyal Kamran____ Name RESEARCH COMPLETION CERTIFICATE Certified that M. Daniyal Kamran, id No. 07u0391 Session 2007 to 2011 has carried out and completed the research project entitled “ Thesis title” under my supervision for requirement for the award of Degree of Bachelor of business Administration Honors (Majors) by Lahore School of Economics. Research supervisor (Zehra Raza) ...
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...EXCHANGE RATE, COMPETITIVENESS AND BALANCE OF PAYMENT PERFORMANCE Exchange Rate, Competitiveness and Balance of Payment Performance U P Alawattage Abstract This paper examines the effectiveness of exchange rate policy of Sri Lanka in achieving external competitiveness since liberalization of the economy in 1977. The conventional two-country trade model that explains the traditional approach to Balance of Payment (BOP) was applied using quarterly data covering the period of 1978:1 to 2000:4. Results reveal that the Real Effective Exchange Rate(REER) does not have significant impact on improving the Trade Balance (TB) particularly in the short run implying a blurred J-Curve phenomenon. Even though the cointegration tests reveal that there is a long run relationship between TB and the REER it shows very marginal impact in improving TB in long run. (JEL F40, O24) I. Introduction The exchange rate is the price of national currency in terms of foreign currency. The close linkage of the exchange rate to the general price levels of the economies produce an economy wide importance of policy making since it affects the real income and wealth of those economies. One of the major objectives of the exchange rate based stabilizations is to improve the Balance of Payment (BOP) performance through international competitiveness. Countries have been using this strategy for a considerable period of time producing varying results. The empirical observations reveal that some countries were...
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