国际金融02德州大学教授.ppt

International Finance FINA 5331 Lecture 7: Balance of Payments William J. Crowder Ph.D.,Balance of Payments Accounting,The Balance of Payments is the statistical record of a countrys international transactions over a certain period of time presented in the form of double-entry bookkeeping. N.B. when we say “a countrys balance of payments” we are referring to the transactions of its citizens and government.,Balance of Payments Example,Suppose that Maplewood Bicycle in Maplewood, Missouri, USA imports $100,000 worth of bicycle frames from Mercian Bicycles in Darby England. There will exist a $100,000 credit recorded by Mercian that offsets a $100,000 debit at Maplewoods bank account. This will lead to a rise in the supply of dollars and the demand for British pounds.,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 Account The Official Reserves Account Statistical Discrepancy,Balance of Payments Accounts,The Current Account,Includes all imports and exports of goods and services (invisible trade). Includes unilateral transfers of foreign aid. If the debits exceed the credits, then a country is running a trade deficit. If the credits exceed the debits, then a country is running a trade surplus. It is thought that the CA responds to changes in income and the exchange rate.,The Current Account,A credit on the current account results in foreign reserves flowing in (fixed exchange rate) or an increase in the demand for domestic currency in the FOREX market (flexible exchange rate). A debit on the current account results in foreign reserves flowing out of the domestic economy (fixed exchange rate) or an increase in the supply of domestic currency in the FOREX market (flexible exchange rate).,The Current Account,When a domestic company sells goods or services to a foreign resident, there will be a credit recorded on the current account. When a domestic resident buys goods or services from a foreign firm, there will be a debit recorded on the current account. When a foreign asset pays interest to a domestic resident, or a domestic resident earns income in the foreign economy, there will be a credit recorded on the current account. When a domestic asset pays interest to a foreign resident, or a foreign resident earns income in the domestic economy, there will be a debit recorded on the current account.,What affects the CA?,CA deficit,0,CA(S0),CA surplus,Domestic Income (Y),Y0,Given the exchange rate, S0, there exists some domestic income level, Y0, where the current account is balanced.,What affects the CA?,CA deficit,0,CA(S0),CA surplus,Domestic Income (Y),Y0,Y1,An increase in income, Y, will cause imports to rise with no change in exports leading to a deterioration in the current account.,What affects the CA?,CA(S1),CA deficit,0,CA(S0),CA surplus,Domestic Income (Y),Y0,Y1,S domestic depreciation causing imports to fall and exports to rise, both of which lead to an improvement in the current account.,J-curve Effect,What conditions are necessary for J-curve effect?,IM is the import demand elasticity = %imports divided by %St. When IM is greater than one (in absolute value), a domestic depreciation will lead to a fall in the dollar value of imports. Import demand is said to be elastic. When IM is equal to one (in absolute value), a domestic depreciation will not change the dollar value of imports. When IM is less than one (in absolute value), a domestic depreciation will lead to a rise in the dollar value of imports. Import demand is inelastic. The J-curve can only occur when import demand elasticities are inelastic.,Algebra of Import Demand Elasticities,Will a depreciation increase your companys exports?,That depends on the elasticity of demand for your product. A domestic depreciation will make your products less expensive to foreign residents. The law of demand tells us that quantity demanded will be higher. But if the price falls by more than the quantity rises (inelastic demand), total sales will be less. An inelastic export demand will lead to lower sales. Your company would be better off with a domestic appreciation! To determine the effect on company export sales of a change in St, one needs to know the foreign demand elasticity.,The Capital Account,The capital account measures the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign assets. The U.S. enjoys about a $444,000,000,000 capital account surplusabsent of U.S. borrowing from foreigners, this “finances” our trade deficit. The capital account is composed of Foreign Direct Investment (FDI), portfolio investments and other investments.,What affects the KA?,KA deficit,r - r*,KA surplus,KA,What affects the KA?,KA deficit,r - r*,KA surplus,KA,If r r* then capital will flow into the domestic economy and create a capital account surplus.,What affects the KA?,KA deficit,r - r*,KA surplus,KA,If r r* then capital will flow out of the domestic economy and create a capital account deficit.,What affects the KA?,KA deficit,r - r*,KA surplus,KA,If r = r* then capital will not have any incentive to move and the capital account will be in balance.,The Capital Account,A credit on the capital account results in foreign reserves flowing in (fixed exchange rate) or an increase in the demand for domestic currency in the FOREX market (flexible exchange rate). A debit on the capital account results in foreign reserves flowing out of the domestic economy (fixed exchange rate) or an increase in the supply of domestic currency in the FOREX market (flexible exchange rate).,The Capital Account,When a domestic entity (firm or individual) sells an asset to a foreign resident, there will be a credit recorded on the capital account. When a domestic resident buys an asset from a foreign entity, there will be a debit recorded on the capital account. Note income earned on these assets is recorded on the current account, not the capital account.,Statistical Discrepancy,Theres going to be some omissions and misrecorded transactionsso we use a “plug” figure to get things to balance. Exhibit 3.1 shows a discrepancy of $0.73 billion in 2000.,The Official Reserves Account,Official reserves assets include gold, foreign currencies, SDRs, reserve positions in the IMF.,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 Because BRA = 0,U.S. Balance of Payments Data,U.S. Balance of Payments Data,In 2000, the U.S. imported more than it exported, thus running a current account deficit of $444.69 billion.,U.S. Balance of Payments Data,During the same year, the U.S. attracted net investment of $444.26 billionclearly the rest of the world found the U.S. to be a good place to invest.,U.S. Balance of Payments Data,Under a pure flexible exchange rate regime, these numbers would balance each other out.,U.S. Balance of Payments Data,In the real world, there is a statistical discrepancy.,U.S. Balance of Payments Data,Including that, the balance of payments identity should hold: BCA + BKA = BRA,($444.69) + $444.26 + $0.73 = $0.30= ($0.30),Balance of Payments and the Exchange Rate,Q,P,Exchange rate $,S,D,Q,P,As U.S. citizens import, they supply dollars to the FOREX market.,Exchange rate $,S,D,Balance of Payments and the Exchange Rate,Q,P,As U.S. citizens export, others demand dollars in the FOREX market.,Exchange rate $,S,D,Balance of Payments and the Exchange Rate,Q,P,S,D,As the U.S. government sells dollars, the supply of dollars increases.,S1,Exchange rate $,Balance of Payments and the Exchange Rate,