发布时间 : 星期一 文章International Financial Management- Bekaert 2e- Solutions- Ch04更新完毕开始阅读151e663514791711cc79172a
Chapter 4
The Balance of Payments
QUESTIONS
1. What are the major accounts of the balance of payments, and what transactions are recorded on each account?
Answer: The three major account of the balance of payments are the current account, the capital account, and the official settlements account. The current account records the following:
1. Imports, which are purchases of goods and services from foreign residents, and
exports, which are sales of goods and services to foreign residents.
2. Transactions associated with the income flows from the ownership of foreign assets
(dividends and interest paid to domestic residents who own foreign assets as well as dividends and interest paid to foreign residents who own domestic assets).
3. Unilateral transfers of money between countries (foreign aid, gifts, and grants given
by the residents or governments of one country to those of another).
The capital account records the following:
Purchases and sales of foreign assets by domestic residents as well as the purchases and sales of domestic assets by foreign residents.
The definition of an asset is all inclusive: It is any form in which wealth can be held. It encompasses both financial assets (bank deposits and loans, corporate and government bonds, and equities) and real assets (factories, real estate, antiques, and so forth). Hence, the capital account records all changes in the domestic ownership of the assets of other nations as well as changes in the foreign ownership of the assets of the domestic country. The official settlements account records the following:
Transactions involving the purchase or sale of official international reserve assets by a nation’s central bank.
International reserves are the assets of the central bank that are not denominated in the domestic currency. Gold and assets denominated in foreign currency are the typical international reserves.
2. Why is it important for an international manager to understand the balance of payments?
Answer: The balance of payments provides information that is useful in understanding the determination of exchange rates and the growth prospects of a country. For example, persistent, large current account deficits, especially ones that are primarily consumer driven, are often associated with currency crises in which the currency of the country with the deficit depreciates substantially and the country suffers a severe recession. Knowledge of the
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official settlements account indicates whether the country is gaining or losing international reserves, and sufficient losses of reserves indicate a loss of the ability to maintain a fixed exchange rate. Massive increases in international reserves indicate that the central bank is resisting pressure for the currency to appreciate in value. Large capital account surpluses that are primarily driven by private sector investments indicate that foreigners find the assets of the country to be attractive investment opportunities.
3. What are the rules that determine the residency requirements on the balance of payments?
Answer: The rules for residency are that the entity has a primary economic interest in the country. Thus, it is not citizenship that is being measured. These concepts are discussed in detail in the IMF’s Balance of Payments manual available online at http://www.imf.org/external/np/sta/bop/BOPman.pdf.
4. Which items on the balance of payments are recorded as credits, and which items are recorded as debits? Why?
Answer: The balance of payments uses a double-entry system. Each transaction gives rise to two entries: One entry is a credit, and the other entry is a debit of equal value. Any transaction resulting in a payment to foreigners is entered in the BOP accounts as a debit. Any transaction resulting in a receipt of funds from foreigners is entered as a credit. In the double entry system, the flow of money from a domestic resident to a foreign resident is a credit and the item that gives rise to the flow (either an import of a good or service or the purchase of a foreign asset) is a debit.
5. How are gifts and grants handled in the balance of payments?
Answer: Gifts and grants are handled as imports and exports of goodwill. If a domestic resident gives a gift to a foreign resident, the value of the gift is a debit (an import of goodwill) and the value of the gift is a credit on the domestic balance of payments because it results in payment of funds to foreigners.
6. What does it mean for a country to experience a capital inflow? Is this associated with a surplus or a deficit on the country’s capital account?
Answer: When a country experiences a capital inflow, foreign residents are investing in domestic assets and domestic residents are selling foreign assets. These transactions are credits on the balance of payments because the country is effectively exporting assets. If capital inflows exceed capital outflows, there is a surplus on the country’s capital account. This surplus would be offsetting a combined deficit on the current account and the official settlements account.
7. If you add up all the current accounts of all countries in the world, the sum should be zero. Yet this is not so. Why?
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Chapter 4: The Balance of Payments 3
Answer: There is a large, consistently negative sign for the global balance of payments which suggests that the discrepancy cannot simply be due to measurement errors because if it were, the balance would be positive about as often as it is negative. One reason why there is a consistent negative sign in the aggregate errors has to do with tax evasion. Many individuals try to escape taxes on the income from their investments. Hence, they may fail to report the interest income they earn on their foreign securities, which would constitute a credit for their home country’s current account balance. Unrecorded earnings in the international shipping business may also account for a large part of the missing surplus. Once again, these would be credits on the service account of the balance of payments. Countries that receive foreign aid may fail to fully account for official aid disbursements. Freer trade has made it more difficult for governments to measure sales accurately, and sales over the Internet may also escape detection.
8. What is the investment income account of the balance of payments?
Answer: The investment income account of the balance of payments is a sub-account of the current account. It records the dividend and interest receipts that domestic residents receive as income from their ownership of foreign assets. These flows are credits. The dividend and interest payments that domestic residents make to foreigners who own domestic assets are recorded as debits on the investment income account.
9. What is the official settlements account of the balance of payments? How are official settlements deficits and surpluses associated with movements in the international reserves of the balance of payments?
Answer: The official settlements account records the purchases and sales of the country’s international reserves. Just as on the private sector’s capital account, if the central bank increases its ownership of international reserves, this is recorded as a debit, whereas a sale of international reserves is a credit. Thus, if the official settlements account is in surplus, the country is losing international reserves.
10. What is the meaning of an account labeled “statistical discrepancy” or “errors and omissions”? If this account is a credit, what does that imply about the measurement of other items in the balance of payments?
Answer: The “statistical discrepancy” or “errors and omissions” account is the value of the measured items on all other accounts with the sign reversed. Thus, if the sum of all other accounts is a negative number, indicating that the other accounts are in deficit, the statistical discrepancy must be a credit (a positive number). The statistician missed some credit items on the other accounts, because we know that the sum of all accounts should be zero due to the double entry nature of the balance of payments.
11. Why must the national income of a closed economy equal the national expenditures of that economy? What separates the two concepts in an open economy?
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Answer: In a closed economy, the value of the final expenditures on all goods and services must be the income of the factors of production in the economy. In an open economy, final expenditures can fall on foreign goods and factors of production can earn income abroad. Net factor income from abroad plus net unilateral transfers from abroad provide flows of resources that separate the income of the country from the value of final goods and services produced in a country.
12. Explain why private national saving plus government saving equals the current account of the balance of payments.
Answer: Saving is the difference between the income of an entity and what that entity consumes. In a closed economy, the value of what is produced, the country’s gross domestic product or GDP, must equal its expenditures and its income. Thus, investment expenditures must be financed by national savings. In the case of an open economy, this does not have to be the case. By definition, national savings are equal to national income minus the consumption of the private (C) and public sectors (G):
National savings = Gross national income – Consumption of the private and public sectors Symbolically,
S = GNI – C – G
We know that gross national income is GDP plus net foreign income, so
S = GDP + NFI – C – G
Substituting the components of GDP gives
S = C + I + G + NX + NFI – C – G
Upon canceling out the consumption terms and rearranging terms, we find
S – I = NX + NFI = CA
National saving – National investment = Current account
If a country’s purchases of investment goods are more than its savings, the country must run a current account deficit; that is, the country’s investment spending must be financed from abroad with a capital account surplus.
13. It has been argued that the high correlation between national saving and national investment that Feldstein and Horioka first measured in 1980 is not evidence of imperfect capital mobility. What arguments can you offer for why they might have misinterpreted the data, and what do recent investigations of this issue imply about the degree of capital mobility throughout the world?
Answer: There are several important caveats to the Feldstein and Horioka interpretation that have been noted in the literature. One line of argument asserts that the high correlation between savings and investment could be produced by common forces that move both variables even though the international capital market is open and competitive. For example, Baxter and Crucini (1993) and Mendoza (1991) argue that economic shocks affecting productivity can increase both saving and investment over the business cycle. The argument
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