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Balance of Payments - GDS

The document discusses the balance of payments and international flow of funds. It defines balance of payments as a statistical record of a country's international transactions over a period of time. It also describes current accounts, capital accounts, and factors affecting international trade and foreign direct investment.

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Arunim Yadav
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29 views17 pages

Balance of Payments - GDS

The document discusses the balance of payments and international flow of funds. It defines balance of payments as a statistical record of a country's international transactions over a period of time. It also describes current accounts, capital accounts, and factors affecting international trade and foreign direct investment.

Uploaded by

Arunim Yadav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Balance of Payments and

International flow of funds

DR GAGAN DEEP SHARMA


USMS, GGSIPU
2
Balance of Payments

 Summary of transactions between domestic and foreign


residents for a specific country over a specified period of
time.

GDS
3
Balance of Payments Accounting

 The statistical record of a country’s international transactions over a certain


period of time presented in the form of double-entry bookkeeping.

GDS
4
BoP Accounting - Examples

1. Suppose that Boeing Corporation exported a Boeing 747 aircraft to Japan Airlines for $50 million, and that Japan
Airlines pays from its dollar bank account kept with Chase Manhattan Bank in New York City. Then, the receipt of
$50 million by Boeing will be recorded as a credit (+), which will be matched by a debit (-) of the same amount
representing a reduction of the U.S. bank’s liabilities.
2. Suppose that Boeing imports jet engines produced by Rolls-Royce for $30 million, and that Boeing makes payment by
transferring the funds to a New York bank account kept by Rolls-Royce. In this case, payment by Boeing will be
recorded as a debit (-), whereas the deposit of the funds by Rolls-Royce will be recorded as a credit (+).
3. Suppose that Ford acquires Jaguar, a British car manufacturer, for $750 million, and that Jaguar deposits the money in
Barclays Bank in London, which, in turn, uses the sum to purchase U.S. treasury notes. In this case, the payment of
$750 million by Ford will be recorded as a debit (-), whereas Barclays’ purchase of the U.S. Treasury notes will be
recorded as a credit (+).

GDS
5
BoP Accounting – Summary of Examples

GDS
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Balance of Payments - Accounts

a. Current Account: summary of flow of funds due to purchases of


goods or services or the provision of income on financial assets.
b. Capital Account: summary of flow of funds resulting from the sale of
assets between one specified country and all other countries over a
specified period of time.

GDS
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Current Account

1. Payments for merchandise and services


2. Factor income payments
3. Transfer payments

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Capital and Financial Accounts

1. Direct foreign investment


2. Portfolio investment
3. Other capital investment
4. Errors and omissions

GDS
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BoP Account – Example

GDS
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BoP Account – Example (contd)

GDS
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International Trade Policies

1. Using the exchange rate as a policy


2. Managerial decisions about outsourcing
3. Using trade policies for security reasons
4. Using trade policies for political reasons

GDS
12

Factors Affecting International Trade Flows

1. Inflation: current account decreases if inflation increases relative


to trade partners.
2. National Income: current account decreases if national income
increases relative to other countries.
3. Government Policies
a. Subsidies for exporters
b. Restrictions on imports
c. Lack of restriction on piracy
4. Exchange Rates: current account decreases if currency appreciates
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relative to other currencies
13

Limitations of a Weak Home Currency Solution

1. Counterpricing by competitors
2. Impact of other weak currencies
3. Prearranged international transactions
4. Intracompany trade

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14

Factors Affecting FDI

1. Changes in Restrictions
2. Privatization
3. Potential Economic Growth
4. Tax Rates
5. Exchange Rates

GDS
15

Factors Affecting International Portfolio Investment

1. Tax rates on Interest or Dividends


2. Interest Rates
3. Exchange Rates

GDS
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Agencies that Facilitate International Flows

1. International Monetary Fund (IMF)


2. World Bank
3. World Trade Organization (WTO)
4. International Financial Corporation (IFC)
5. International Development Association (IDA)
6. Bank for International Settlements (BIS)
7. Organization for Economic Cooperation and Development
(OECD)
GDS 8. Regional development agencies
Eurodollars

 Since WWII, the dollar has become the premier international


currency. Therefore, many foreign companies and governments
hold dollars rather than their own currency.
 Further, to avoid interest rate restrictions, US banks began offering
dollar denominated accounts at their foreign branches. These
accounts became known as Eurodollar accounts.
 Euromarkets have expanded into Eurobonds, Euroloans, Euro
Commercial paper. There is currently over $30 Trillion in
Eurodeposits around the world.

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