Balance of Payments

1
Balance of Payments

• Why should International Businesspeople pay
  attention to the Balance of Payments Statistics?

2
Balance of Payments

1. BOP statistics help identify emerging markets for
   goods and services.
2. They can warn of possible new policies that may
   alter a nations business climate.
3. They can indicate a reduction in a nations
   foreign reserves.
4. They can indicate an increase in risk to lending
   to particular nations.

3
Major Components of the BOP Accounting System

1. Current Account
2. Capital Account
3. Official Reserves
4. Errors and Omissions

4
Current Account

• Exports and Imports of goods
• Exports and Imports of services
• Investment Income
• Gifts

Key to whether its an export or an import what
is the direction of the flow of money? Money
flows in export. Money flows out import.
5
Capital Account

• Records the purchases and sales of assets between
  residents of different countries.

• Foreign Direct Investment (FDI)
• Portfolio Investments

6
Official Reserves

• Gold
• Convertible Securities

7
Errors and Omissions

• Records the purchases and sales of assets between
  residents of different countries.

8
How will the BOP be affected?

• An American entrepreneur seeking to sell
  souvenirs at the 2004 Olympics in Athens pays
  Olympic Airlines, a Greek airline, 1,400 for a
  New YorkAthens round-trip ticket.
• That entrepreneur instead pays United Airlines
  (an American airline) 1,400 for a New
  York-Athens round-trip ticket.
• Ford Motor Company (U.S) pays 2.5 billion for
  the Jaguar Motor Company (U.K.).
• The U.S. government gives Rwanda 500 million
  worth of food to feed starving refugees.

9
Additional Resources

• http//www.digitaleconomist.com/bop_4020.html
• http//www.investopedia.com/articles/03/060403.asp
  
• http//www.econlib.org/library/Enc/BalanceofPaymen
  ts.html
• http//en.wikipedia.org/wiki/Balance_of_payments