TOPIC 3

BALANCE OF PAYMENT

1
 OUTLINE
• Balance of Payments?
• Balance of Payments Accounts
– The Current Account (tk vãng lai)
– The Capital & Financial Account (tk vốn và tài chính)
– Statistical Discrepancy (Errors and Omissions - sai và sót)
– Official Reserves Account
• Balance of Payment – BPM6
 BALANCE OF PAYMENTS
The balance of payments is the statistical record of a country’s
international transactions over a certain period of time presented
in the form of double-entry bookkeeping (EUN, 2016).

BPM6: The balance of payments is a statistical statement that

summarizes transactions between residents and nonresidents
during a period. It consists of the goods and services account, the
primary income account, the secondary income account, the
capital account, and the financial account (IMF, 2017).
 PROBLEM SET: LIST OF TRANSACTIONS

1. Purchase of $35 million in Japanese bonds by Vangaurd (USA).

2. A $25 million US aid to Bosnia
3. $45 million sales by All State Insurance in France
4. Purchase by HP of components valued at $65 million from Huyndai, in Korea.
5. A $120 million stock issue in Frankfurt by GE
6. Payment of $10 million in dividends by GE to its investors in Frankfurt
7. Purchase of $50 million Euros by the US Federal Reserve
8. Purchase of $60 million in Japanese Govn’t Bonds by the US Federal Reserve
9. Foreign tourists spending $15 million in New Orleans
10.Sale of Star Wars DVD, valued at $55 million, in China
 BOP PRACTICE PROBLEM

Credit Debit
Goods/Merchandise
Service
Primary Income (Investment income)
Secondary Income (Unilateral Transfer)
Capital & Financial Account 1(35)
Official Reserve
 Explanation
Primary income (Investment income): chủ yếu là những thu nhập đến từ hoạt
động đầu tư (cổ phiếu, trái phiếu…)

Secondary Income (Unilateral Transfer): viện trợ nhân đạo

Capital account: xóa nợ giữa các chính phủ - không đáng kể

Financial account: vốn đầu tư trực tiếp (FDI) hoặc gián tiếp (cổ phiếu, trái
phiếu…)
 BALANCE OF PAYMENTS ACCOUNTS

• The balance of payments accounts are those that record all

transactions between the residents of a country and residents of
all foreign nations.
• They are composed of the following:
– The Current Account
– The Capital & Financial Account
– Net errors and omissions

Copyright © 2014 by the McGraw-Hill Companies, Inc. All rights reserved.

 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

Under a pure flexible exchange rate regime,

BCA + BKA = 0
Copyright © 2014 by the McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM #1 –P.83
 BALANCE OF PAYMENTS – BPM6

“Primary income,” mainly investment income

≡ “secondary income”

NOW CALLED “FINANCIAL ACCOUNT”

Nguồn: Frankel (2017)

 THE CURRENT ACCOUNT

BPM6: The current account shows flows of goods,

services, primary income, and secondary income
between residents and nonresidents.
 THE CAPITAL ACCOUNT

BPM6: The capital account shows credit and debit entries for
nonproduced nonfinancial assets and capital transfers between
residents and nonresidents.
 THE FINANCIAL ACCOUNT

BPM6: The financial account The financial account shows net

acquisition and disposal of financial assets and liabilities.
THE BALANCE OF PAYMENTS IDENTITY – BPM6

BCA + BKA + EO - BFA = 0

where
BCA = Balance on current account
BKA = Balance on capital account
BFA = Balance on the Financial account (Asset – Liability)
EO = Net errors and omissions
THE BALANCE OF PAYMENTS IDENTITY – BPM6

BCA + BKA + EO – (BFA + BRA)= 0

where
BCA = Balance on current account
BKA = Balance on capital account
BFA = Balance on the Financial account (exclude BRA)
BRA = Balance on the Official Reserve account
EO = Net errors and omissions
 BOP PRACTICE PROBLEM

Trade of Balance

Current Account Balance

Financial Account Balance (BPM6)

 SOME CASES OF BOP
Country A B C D E F G H
CA 0 -5 -3 -3 +5 +2 +5 -2
KA + FA 0 +5 +5 +1 -2 -5 +2 -3
BOP - - +2 -2 +3 -3 +7 -5
∆FR 0 0 -2 +2 -3 +3 -7 +5
FR - - ↗ ↘ ↗ ↘ ↗ ↘
Trích từ Bài giảng của Thầy Châu Văn Thành
G: Trung Quốc, Việt Nam?

H: Thái Lan, 1997 rơi vào thâm hụt kép cả CA và KA do vốn tháo chạy
sau khủng hoảng (dạng H, cạn kiệt dự trữ ngoại tệ FR).
ILLUSTRATION
BY AXIS OF
COORDINATES

Trích từ Bài giảng của Thầy Châu Văn Thành

 PROBLEM SET #1: LIST OF TRANSACTIONS

a. Payment of $20 million in Social Security to US citizens living in Costa Rica

b. Sales overseas of Elvis Presley CDs valued at $15 million.
c. Tuition receipts of $30 million by American universities from foreign students.
d. Payment of $8 million consulting fees to Arthur Andersen by a Mexican firm
e. Sales of a $100 million Eurobond issue in London by IBM.
f. Payment of $10 million in interest by IBM to its Eurobond investors in London
g. Purchase by TI of memory chips valued at $60 million from Toshiba, in Japan.
h. Purchase of $25 million in East European stocks by Fidelity Investments (USA).
i. Fidelity receives $5 million in dividends from its East European stock investment
j. US Federal Reserve sells $20 million of Japanese bonds
k. US Federal Reserve buys $30 million of Japanese yen
20
 PROBLEM SET #3: LIST OF TRANSACTIONS

A. Payment of $20 million in Social Security to US citizens living in Costa Rica

B. Sale overseas of Elvis Presley CDs valued at $15 million.
C. Tuition receipts of $30 million received by US universities from foreign students.
D. Payment of $8 million consulting fees to Arthur Andersen by a Mexican firm
E. Purchase of $ 32 million of British Pounds by the US Federal Reserve
F. Purchase of $ 6 million of British government bonds by the US Federal Reserve
G. Sale of a $100 million Eurobond issue in London by IBM.
H. Payment of $10 million in interest by IBM to its Eurobond investors in London
I. Sale of $8 million in gold by the US Federal Reserve
J. Purchase by TI of memory chips valued at $60 million from Toshiba, in Japan.
K. Purchase of $25 million in East European stocks by Fidelity Investments (USA).