Are You Always Spending Your Money for Imported Goods?

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Are you always

spending yourmoney forimported goods?

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BALANCE OF PAYMENT

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Chapter Roadmap

Define Balance of Payments,

Discuss Composition of Balance ofPayments,

Explain the Causes of balance ofpayments Deficits, and

Explain the Solutions to Balance ofPayments Deficits

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OVERVIEW

INTERNATIONAL TRADE- exchange ofgoods and services between one

country and other countries

$ Dollar- usually the medium ofinternational payment system

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Definition of TERMS

Balance of Payment

-annual accounting statement of all

financial transactions of a country with

the rest of the world.

-include transactions of individuals,

businessmen & government of one

country with individuals, businessmen &

government of other countries

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Definition of TERMS

If deficit- BSP has to draw on its officialmonetary reserves( like gold or US

Dollar)

- IF not sufficient BSP obtain foreignloans( borrowed money from the WB &

IMF)

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Definition of TERMS

Balance of Trade- a situation where thevalue of the exports of a country is equal

to the value of its imports

Visible Items- refers to goods in thebalance of payments

Invisible Items- pertain to services inthe balance of payments

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Definition of TERMS

Surplus Balance of Payments- asituation where the receipts( income) are

greater than the payments ( expenses)

Deficit Balance of Payments- asituation where the receipts are lesser

than the payments.

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Definition of TERMS

Credits- these are the receipts ofindividuals, organization or government

coming from other countries.

( eg salaries of overseas workers, IMF

loans, foreign donations, US bases

rentals, export earnings, expenses of

tourists in the country)

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Definition of TERMS

Debits - these are the payments ofindividuals, org. or gov. of a country to

other countries.

- These are outflows of resources from

country

- e.g ( import payments, travels abroad,

repayment of WB loans, foreign studies,

donations, investment in New York

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COMPONENTS OF BOPs

> Current Account> Capital Account>Official Monetary

Reserves/ Cash Account

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HYPOTHETICAL BOP/s OF

COUNTRY X

Items Cr. Dr.

Current Accounts

Goods

exports +

imports -

Services

Japanese Tourists +

Filipino Students in US -

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HYPOTHETICAL BOP/s OF

COUNTRY X

Item Cr. Dr.

Capital Account

Private Foreign Inv. +

World Bank Loans +United nations grants +

Debt Payment to WB-IMF -

Cash AccountMonetization of Gold +

Allocation of SDRs +

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CAUSES OF BOPs DEFICITS

Structural or Real Causes

-traditional exports of LDCs are products

which are inelastic

- lower price of the primary products

- exports earning of LDCs are low

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SOLUTIONS TO BOP

Adjustments of BOP- equalize receipts& payments

Adjustments of BOP- means solving ofBOP

To eliminate BOP Deficits increasedreceipts (CREDIT) and decrease

payments( DEBIT)

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SOLUTIONS TO BOP

Reduce Payments- governmentexpenditures are reduced.

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SOLUTIONS TO BOP

BSP will execute the followingmeasures:

1. Increase cash margins for the

opening of letter of credit to theimportation of luxuries & other non-essential goods

2. Total ban on the importation ofluxuries & other non-essential goods

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SOLUTIONS TO BOP

3. Limit dollar allocation to

importers of said goods, together

with unnecessary foreign travel4. impose higher exchange rate for

the importation of luxuries & other

non-essential goods

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QUIZ

Essay.

1. Briefly discuss one cause of

balance of payments deficits. ( 5points)

( sheet of paper, maximumof 5 sentences.)