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 5
goes like this: An increase in productivity causes output and income to increase. Some of the increase in income is consumed, but some of it is saved because the shock is not expected to be permanent. But because productivity is temporarily high and is expected to be high for awhile, it is also a good time to invest. Hence, investment and saving both increase. Bai and Zhang (2010) argue that financial frictions, such as default risk, prevent people in different countries from sharing risk adequately, leading to the positive correlation between savings and investment.
Finally, Jeffrey Frankel (1991) has argued that high correlations between national investment rates and national saving rates should not really be surprising because the world economy during the 1960s, 1970s, and even much of the 1980s and 1990s was not characterized by perfect capital mobility. That is, capital markets were not completely open around the world. For example, there were significant barriers to international investment in many European countries and Japan that persisted well into the 1980s. (See also Chapter 1.) Hence, it would stand to reason that in countries in which saving rates are high, investment rates would be high as well because there is nowhere else for the capital to go. Frankel argues that to assess how integrated the world’s capital markets are, we must look at the various rates of return offered around the world and not merely the flows of saving and investment stressed by Feldstein and Horioka.
More recent investigations of this issue, such as Bai and Zhang (2010) find that the
correlations between savings and investment are going down, which implies that capital mobility is increasing.
PROBLEMS
1. Suppose that the following transactions take place on the U.S. balance of payments during a given year. Analyze the effects on the merchandise trade balance, the international investment income account, the current account, the capital account, and the official settlements account.
a. Boeing, a U.S. aerospace company, sells $3 billion of its 747 airplanes to the People’s Republic of China, which pays with proceeds from a loan from a consortium of international banks.
Answer: Boeing’s sale of planes is an export on the U.S. balance of payments, which is a credit. The fact that China borrows from international banks is difficult to assess but ultimately, it means that U.S. ownership of foreign assets is going up. The Chinese must ultimately be borrowing from U.S. residents. This is a debit on the U.S. balance of payments. U.S. BOP Credit Debit Sale of airplanes by a U.S. exporter to China $3 billion (Current account; U.S. goods export, trade balance) Reduction of Ownership of U.S. assets by the $3 billion Consortium of International Banks (Capital account; U.S. Capital outflow)
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b. Mitsubishi UFJ Financial Group purchases $70 million of 30-year U.S. Treasury bonds for one of its Japanese clients. Mitsubishi draws down its dollar account with Bank of America to pay for the bonds.
Answer: The purchase of Treasury bonds by a foreign company is a credit on the U.S. balance of payments just like an export of goods is a credit. The reduction in Mitsubishi’s bank account is a reduction in foreign ownership of U.S. assets and is a corresponding debit. U.S. BOP Credit Debit Mitsubishi draws down its account with Bank of $70 million America (Capital account; U.S. Capital outflow) Mitsubishi purchases U.S. Treasury bonds $70 million (Capital account; U.S. Capital inflow)
c. Eli Lilly, a U.S. pharmaceutical company, sends a dividend check for $25,255 to a
Canadian investor in Toronto. The Canadian investor deposits the check in a U.S. dollar-denominated bank account at the Bank of Montreal.
Answer: The dividend check is a debit on the U.S. balance of payments because it is a payment to a foreigner. The corresponding credit is the increase in foreign ownership of U.S. assets that occurs when the dollars are deposited in the bank and not spent on goods or services in the U.S. U.S. BOP Credit Debit Dividend check to a Canadian investor $25,255 (Current account; dividend payout in international investment account) Canadian investor deposits the check in a U.S. dollar-$25,255 denominated foreign bank account (Capital account; U.S. Capital inflow)
d. The U.S. Treasury authorizes the New York Federal Reserve Bank to intervene in the
foreign exchange market. The New York Fed purchases $5 billion with Japanese yen and euros that it holds as international reserves.
Answer: When the New York Fed purchases $5 billion in the foreign exchange market and thus sells international reserves, this is a credit on the official settlements account of the U.S. balance of payments just as if the private sector were selling goods or assets. The corresponding debit is a decrease in the foreign ownership of U.S. assets because the New York Fed bought dollars. U.S. BOP Credit Debit $5 billion increase in foreign holdings of U.S. assets $5 billion (Capital account; U.S. Capital inflow) The New York Fed sells $5 billion worth of international $5 billion reserves (Official Settlements Account; decrease in international reserves) e. The president of the United States sends troops into a Latin American country to establish a
democratic government. The total operation costs U.S. taxpayers $8.5 billion. To show their
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support for the operation, the governments of Mexico and Brazil each donate $1 billion to the United States, which they raise by selling U.S. Treasury bonds that they were holding as international reserves.
Answer: It is not entirely clear how much, if any, of the $8.5 billion of military expenditures would be part of the balance of payments. Any expenditures on soldiers would not be, as the soldiers are considered U.S. residents for balance of payments purposes. Any equipment that was damaged or destroyed would also be U.S. equipment, and would not be part of the U.S. balance of payments. Only purchases made in the Latin American country would be imports. We assume these expenditures are zero, as we know how to deal with imports from previous questions.
The $2 billion donations by Mexico and Brazil are unilateral transfers from foreigners, which corresponds to an export of goodwill. The transfers are thus credits on the U.S. balance of payments. The reduction in the ownership of U.S. assets by Mexico and Brazil are the corresponding debits. U.S. BOP Credit Debit The governments of Mexico and Brazil each donate $1 $2 billion billion to the United States (U.S. export of goodwill) (Current account; Brazilian & Mexican donations) Mexico & Brazil Sale of U.S. Treasury bonds $2 billion (Capital account, U.S. Capital outflow)
f. Honda of America, the U.S. subsidiary of the Japanese automobile manufacturer, obtains
$275 million from its parent company in Japan in the form of a loan to enable it to construct a new state-of-art manufacturing facility in Ohio.
Answer: The loan is considered a credit on the U.S. balance of payments because foreigners are increasing their ownership of U.S. assets. The reduction in the parent company’s ownership of U.S. assets is a corresponding debit. U.S. BOP Credit Debit Honda’s American Subsidiary obtains a foreign loan $275 million (Capital account; U.S. Capital inflow) Reduction in Honda Japan’s ownership of U.S. assets $275 million (Capital account; U.S. Capital outflow)
2. Consider the situation of La Nación, a hypothetical Latin American country. In 2010, La
Nación was a net debtor to the rest of the world. Assume that all of La Nación’s foreign debt was dollar denominated, and at the end of 2010, its net private foreign debt was $75 billion and the official foreign debt of La Nación’s treasury was $55 billion. Suppose that the interest rate on these debts was 2.5% per annum (p.a.) over the London Interbank Offering Rate (LIBOR), and no principal payments were due in 2011. International reserves of the Banco de Nación, La Nación’s central bank, were equal to $18 billion at the end of 2010 and earn interest at LIBOR. There were no other net foreign assets in the country. Because La Nación is growing very rapidly, there is great demand for investment goods in La Nación. Suppose that residents of La Nación would like to import $37 billion of goods during 2011. Economists indicate that the value of La Nación’s exports is forecast to be $29 billion of goods during 2011. Suppose that the Banco de Nación is prepared to see its international reserves fall to $5 billion during 2011. The LIBOR rate for 2011 is 4% p.a.
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a. What is the minimum net capital inflow during 2011 that La Nación must have if it wants to
see the desired imports and exports occur and wants to avoid having its international reserves fall below the desired level?
Answer: We know that the balance of payments always sums to zero:
Current account + Regular capital account + Official settlements account = 0
The current account records exports minus imports plus interest inflows minus interest outflows. Interest outflows are required to service the $75 billion of private debt and $55 billion of public debt. The interest payments will be at a rate of 6.5% (LIBOR of 4% plus a spread of 2.5%), or total interest payments of 0.065 ? ($75 billion + $55 billion) = $8.45 billion. There will be interest income on the $18 billion of interest reserves which earn interest at 4%. Thus, interest income is 0.04 ? ($18 billion) = $0.72 billion. Hence, the deficit on the interest income account will be $8.45 billion - $0.72 billion = $7.73 billion. Because La Nación wants to import more than it exports, it will have a trade deficit of $37 billion - $29 billion = $8 billion. The current account deficit will be the sum of the trade account deficit and the interest income deficit or $8 billion + $7.73 billion = $15.73 billion. This deficit must be balanced by a surplus on the official settlements account and a private sector capital account surplus. If the central bank draws down its international reserves from $18 billion to the minimum of $5 billion, they can provide $13 billion of the $15.73 billion that must be financed. Thus, the private sector would need to have a capital inflow of $2.73 billion.
b. If this capital inflow occurs, what will La Nación’s total net foreign debt be at the end of
2011?
Answer: The total net foreign debt is the sum of private and public foreign debts minus public assets. At the end of 2010, net foreign debt was
$75 billion + $55 billion - $18 billion = $112 billion
At the end of 2011, the new net foreign debt is
$75 billion + $55 billion + $2.73 billion - $5 billion = $127.73
The increase in net foreign debt is the current account deficit of $15.73 billion.
3. True or false: If a country is a net debtor to the rest of the world, its international investment
service account is in deficit. Explain your answer.
Answer: The statement is false. The situation of the U.S. in the late 1990s is a good counter example. As long as the income that a country receives on its foreign assets is providing a higher rate of return than the payments that country is making to foreigners who own domestic assets, the country can be a net debtor (that is, have a negative net international investment position) but still have a surplus on its international investment service account.
4. Choose a country and analyze its balance of payments for the past 10 years. Good sources of
data include official bulletins of the statistical authority of a country or its central banks; International Financial Statistics, which is a publication of the IMF (www.imf.org), and the Main Economic Indicators, which is a publication of the Organization for Economic Co-operation and Development (www.oecd.org).
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