1、CHAPTER 16CHAPTER 16 PAYMENTS AMONG NATIONSPAYMENTS AMONG NATIONS Objectives of the ChapterObjectives of the Chapter This chapter looks at how international exchanges of goods, services, and financial assets are recorded in official statistics. Two sets of statistics are presented: the balance of pa

2、yments accounts and the international investment position accounts. The trade, current, financial, and official settlements accounts are specialized accounts within the balance of payments accounts, and are derived by grouping international transactions according to common characteristics. Although

3、the details of international accounting may seem a bit dry, there are two important economic uses for the accounts. The first use is in determining the relationship between the saving of a countrys residents and the amount of capital formation going on in that country: S = I d + If = CA. So, for exa

4、mple, if country A is running a current account deficit we know that it is saving less than it is investing at home (SId) and that other countries are investing in country A (I f 0). Second, if there is a large difference between the value of the current account and the value of the financial accoun

5、t, it means that the countrys monetary authorities must be actively engaging in the buying or selling of official reserve assets. After studying Chapter 16 you should know 1. what information the balance of payments accounts record. 2. the distinction between debit and credit entries. 3. the meaning

6、 and scope of various accounts balances. 4. why the current account balance equals the difference between national product and national expenditure. 5. the concept of an overall balance of payments surplus or deficit. 6. the meaning and usefulness of the balance on international investment. 7. the h

7、istorical status of the U.S. as net creditor or debtor with respect to the rest of the world. Important ConceptsImportant Concepts Balance of payments:Balance of payments:The systematic set of accounts that records all economic transactions between residents of a country and the rest of the world du

8、ring a given period of time. Records the values of financial assets purchased and sold abroad by private residents (not monetary authorities) of the home country. A financial account surplus indicates that, on net, financial capital has flowed into the country. Either an increase in foreign assets i

9、n the nation, such as when a foreigner purchases a U.S. stock; or a reduction in the nations assets abroad, such as when an American sells a foreign stock. Financial account:Financial account: Capital inflow:Capital inflow: Capital outflow:Capital outflow:Either an increase in the nations assets abr

10、oad, such as when an American purchases a foreign asset; or a reduction in foreign assets in the nation, such as when a foreigner sells his American assets. Records the values of goods and services sold and purchased abroad, plus net interest and other factor payments and net unilateral transfers an

11、d gifts. A current account surplus shows that a country has positive net foreign investment. Measures a nations stock of foreign assets and liabilities at a point in time. The part of national saving invested abroad instead of being channeled into domestic capital formation: (S = I d + If). It is al

12、so the difference between purchases of financial assets (lending) abroad and asset sales to foreigners (borrowing), that is, a countrys accumulation of net claims on other countries. Also called the “official balance,” this is the sum of the current account balance plus the private financial account

13、 balance. An imbalance in the official balance must be paid for through official reserves transactions. Thechangesindomesticofficialreserveassetsandin domestic official liquid liabilities to foreign officials. It is derived by dividing private transactions from official “accommodative” transactions

14、in the balance of payments accounts. Assets held by a nations monetary authorities as a kind of “war chest” to enable them to intervene in the foreign exchange market if and when they decide to do so. Reserve assets include key foreign currencies, gold, official reserves at the IMF, and holdings of

15、Special Drawing Rights (SDRs). Recently, China has accumulated a very large stock of dollar-denominated reserve assets. The value of goods exported (credits) minus the value of goods imported (debits). The value of exported goods and services minus imported goods and services is often referred to as

16、 “the trade balance.” Current account:Current account: International investmentInternational investment position:position: Net foreign investment:Net foreign investment: Official settlements balance:Official settlements balance: Official internationalOfficial international reserves transactions:rese

17、rves transactions: Reserve assets:Reserve assets: Merchandise trade balance:Merchandise trade balance: Warm-up QuestionsWarm-up Questions True or False? Explain.True or False? Explain. 1.T / F 2.T / F 3.T / F 4.T / F A negative net foreign investment on this years balance of payments accounts means

18、the country is a net debtor. A nation running a current account surplus is accumulating foreign assets. Because the balance of payments accounts must balance, sub-accounts like the financial account must balance, too. If GDP, consumption, and domestic investment are all constant, an increase in gove

19、rnment spending will cause the country to run a trade deficit. 5.T / FThe “statistical discrepancy” component of the balance of payments accounts is a refuge for scoundrels. Multiple Choice 1.If a U.S. firm borrows one billion dollars in Mexican pesos from Citibanks Mexico branch and uses the money

20、to build a factory in Mexico, the transition will enter the U.S. balance of payments as a credit on A. short-term private capital inflow and a debit on direct investment payments. B. long-term private capital inflow and a debit on long-term private capital outflow. C. long-term private capital inflo

21、w and a debit on direct investment. D. short-term private capital inflow and a debit on short-term private capital outflow. An economic transaction is recorded in the balance of payments as a credit if it leads to A. a payment to foreigners. B. the receipt of a payment from foreigners. C. a decrease

22、 in foreign exchange reserves. D. neither an inflow nor an outflow of value. Which of the following is recorded as a debit item in the U.S. balance of payments accounts? A. An Italian firm pays $5 million in dividends to the holders of its stock in the U.S. B. The French Club Med hires four American

23、 scuba diving instructors for its new resort on the Italian island of Sardinia. C. Toyota builds a factory in the U.S. to manufacture automobiles. D. Remittances from Cambodian immigrants in the U.S. flow to their relatives in Thailands refugee centers. Borrowing from abroad is a A. capital import a

24、nd therefore a debit item. B. capital export and therefore a credit item. C. capital import and therefore a credit item. D. capital export and therefore a debit item. If a countrys net foreign investment amounts to $15 billion, this implies an equivalent A. current account deficit. B. current accoun

25、t surplus. C. trade balance surplus. D. overall balance deficit. 2. 3. 4. 5. Problems 1.Number crunchers in Leinster have been working hard to come up with information about flows of funds between Leinster and Saxony. Suppose they have derived the following data for the current year in Leinster. (Al

26、l numbers are in billions of the Leinster currency, the Leinster lira, which is abbreviated as Ll.) National productLl 100.00 ConsumptionLl 60.00 Government purchasesLl 15.00 Formation of Leinster CapitalLl 15.00 Exports to SaxonyLl 20.00 a.What is the value of goods and services imported from Saxon

27、y? b.Is Leinster, on net, lending to or borrowing from Saxony? Assume the following is complete and accurate information about international transactions of the United States. a.Place each transaction in the proper place in the balance of payments accounts. Donald Trump buys a cottage in France for

28、$1,008. American manufacturers export $998 in baseball bats. Profits from Costa Rican coffee plantations owned by residents of Seattle equal $1,002. Interest paid on a U.S. Treasury bond to a Japanese citizen is $1,004. An Irish worker in San Francisco sends $996 to her mother in Dublin. A German to

29、urist spends $1,006 on a fling in Las Vegas. A Greek billionaire buys a hot dog stand in New York City for $1,006. Martha Stewart imports $1,002 of wine from France. 2. 3. b.Find the trade balance, the current account balance, and net private capital flows. c.Based on that information, was the Feder

30、al Reserve buying or selling foreign exchange? How much? d.Can you tell from the data whether there is a floating or a fixed exchange rate? Which of the following transactions would contribute to a U.S. current account surplus? a.McDonalds makes a barter trade with Russia, providing hamburgers for t

31、he Kremlin in exchange for potatoes from Russian state farms. b.The U.S. borrows $100 million from Kuwait to buy $100 million of Kuwaiti oil this year. c.The U.S. sells Israel $100 million in automatic weapons, paid for with $100 million in bank deposits. d.The U.S. government makes a gift of $100 m

32、illion to the people of Rwanda to pay for emergency hospital care. e.The U.S. government sells $100 million in long-term bonds to Japan, is paid with bank deposits in Tokyo, and promises to repay the loan in five years. f.American travel agents buy Olympic Games tickets from a Chinese scalper, paying with dollars (cash). 4.The following information for 2008 was collected by Avalons Chief International Accountant: Sales of computers to Saxony$1,200 Purchases of summer homes in Saxony$500 P