1.the balance of payment.pptVIP

Chapter 1: The Balance of Payments The concept of the B.P The contents of the B.P The analysis of the B.P 1-1 The concept of the B.P 一、B.P concept 1.The balance of payments is an accounting statement based on double-entry bookkeeping that records all flows of value between a country’s residents and the residents of the rest of world during a period of time. 2.How to understand the concept? Flow (not a stock): all flows of value in a period of time Trades (transactions) between residents to non-residents-------international transactions 1-1 The concept of the B.P 3.Double-entry bookkeeping Each transaction has both a credit and a debit item . A credit or positive item is the flow for which the country is paid—it sets up a claim on the foreign resident, so that funds (or money) flow into the country. For example: exports; capital inflows A debit or negative item is the flow that the country must pay for—it sets up a foreign claim on a resident of the country, so that funds (or money) flow out of the country. For example: imports; capital outflows e.g. a 10-year loan of $1 million is made to China. the loan is funded by creating a $1 million deposit for China in a U.S. bank. (how to book in China’s B.P?) debit: deposit in U.S. bank $1 million . credit: long-term capital $1 million . 1-2 The contents of the B.P CURRENT ACCOUNT Is defined as including the value of trade in merchandise, incomes,services, and unilateral transfers. Merchandise: the obvious trade in tangible commodities. Services: refers to trade in the services of factors of production, land, labor and capital. It includes travel and tourism, royalties, transportation costs, and insurance premiums, etc. Investment income:the services of physical capital,the return on investment, the earnings of domestically owned firms operating abroad and international interest and dividend payments Unilateral transfers: includes transfers such as foreign aid, gifts, and retirement pension, etc. 1-2