Professional Documents
Culture Documents
CHAPTER OVERVIEW
I. BALANCE-OF-PAYMENT CATEGORIES II. THE INTERNATIONAL FLOW OF GOODS, SERVICES, AND CAPITAL III. COPING WITH CURRENT ACCOUNT DEFICITS
BALANCE-OF-PAYMENT CATEGORIES
THE BALANCE OF PAYMENTS (B-O-P)
1. PURPOSE: Measures all financial and economic transactions over a specified period of time.
2.
Double-entry bookkeeping
BALANCE-OF-PAYMENT CATEGORIES
Sources of fund = decrease in assets or an increase in liabilities Uses of fund = increase in assets or an decrease in liabilities In example: Suppose a Batik Indonesia company exports 100 Batik to U.S at price of $100,000. At current rate Rp1= $9,800, this order is Rp.980.000.000 Debit Credit Batik Indonesia export Rp.980.000.000 Private foreign assets Rp.980.000.000
BALANCE-OF-PAYMENT CATEGORIES
3. Three principal balance- of payment categories : a. Current account b. Capital account c. Financial account
BALANCE-OF-PAYMENT CATEGORIES
4. Balance-of-payment Measures a. Definitions: 1. Basic Balance focuses on transactions considered to be fundamental to the economic health of currency. It includes the balance on current account and long term capital. 2. Net liquidity balance measures the change in private domestic borrowing or lending that is required to keep payments in balance without adjusting official reserves.
BALANCE-OF-PAYMENT CATEGORIES
3. Official Reserve Transactions Balance Measures adjustments required in official reserves to achieves balance-of-payments equilibrium.
and
2.
3.
CURRENCY DEPRECIATION A. U.S. Experience: Does not improve the trade deficit. B. Depreciations ineffective because 1. It takes time to affect trade. 2. J-Curve Effect states that a decline in currency value will initially worsen the deficit before improvement.
THE J - CURVE
Net change in trade balance
0 Trade balance improves
Currency depreciation
TIME
B. PROTECTIONISM
A. Trade Barriers used: 1. Tariffs 2. Quotas B. Results: Most likely will reduce both X and M.
Continue...
D. Current account deficit and unemployement is dilemma in our country, because have pro and contra argument.