INTERNATIONAL FINANCE. International Business College Fang De-dong Ph.D Associate Professor Tel: 13688675513 E-mail: [email protected]. 00- 1. Chapter One International Economics Is Different. [teaching targets and demands] - PowerPoint PPT Presentation
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Chapter OneChapter OneInternational Economics Is DifferentInternational Economics Is Different
[teaching targets and demands][teaching targets and demands] To introduce the relative concepts of To introduce the relative concepts of
international finance, for instance, international finance, for instance, currency exchanges between different currency exchanges between different countries for trades and investments, by countries for trades and investments, by four typical events. four typical events.
[teaching targets and demands][teaching targets and demands] Be sure to master the concepts such as Be sure to master the concepts such as
balance of paymentsbalance of payments, , current accountcurrent account balancebalance, , direct investmentsdirect investments, , portfolio portfolio investmentinvestment, , official settlement balanceofficial settlement balance etc. etc. and the methods to make and analyze a and the methods to make and analyze a balance of payments presentation.balance of payments presentation.
What is a country’s balance of payment?What is a country’s balance of payment? A systematic account of all the A systematic account of all the
exchanges of value betweenexchanges of value between residents residents of of that country and the rest of the world that country and the rest of the world during a given timeduring a given time period period
Tow flows in any transactionTow flows in any transaction The Records Principle of BOP The Records Principle of BOP
Double Entry BookkeepingDouble Entry Bookkeeping :: the system of keeping the system of keeping
accounts accounts ,, every payment appears every payment appears twice twice , , in different accents in different accents ,, once as once as a a credit credit (贷方)(贷方) and once as aand once as a debit debit (借方)(借方) ..
————————————bookkeeping bookkeeping :: recording business transactions recording business transactions 簿记 簿记 account account :帐户;帐目:帐户;帐目
贷方贷方 CreditCreditExports of goodsExports of goodsPurchases by foreigners in this countryPurchases by foreigners in this countryForeigners’ investing in the country’s Foreigners’ investing in the country’s
Six categories of flowsSix categories of flows• Merchandise trade flowsMerchandise trade flows• Goods and Services flowsGoods and Services flows• Income flowsIncome flows• Unilateral transfersUnilateral transfers• Private capital flowsPrivate capital flows• Official international reserve flowsOfficial international reserve flows
Outline of balance of paymentOutline of balance of payment
Current account(CA)Current account(CA) Financial account(FA)Financial account(FA) Official international reserveOfficial international reserve Statistical discrepancy (net value of Statistical discrepancy (net value of
Merchandise (goods) trade balance Merchandise (goods) trade balance Goods and service balance (trade balance)Goods and service balance (trade balance) Goods, service, and income balanceGoods, service, and income balance Goods, service, income and unilateral Goods, service, income and unilateral
is a record of international exchange of is a record of international exchange of assets and liabilities . Including direct assets and liabilities . Including direct investments and securityinvestments and security (( portfoliolportfoliol ) ) investments .investments .
direct investmentsdirect investments:: any flow of lending to, or any flow of lending to, or purchases of ownership in a foreign enterprise purchases of ownership in a foreign enterprise that is largely owned by residents of the that is largely owned by residents of the investing country. (IMF25%, US.10%)investing country. (IMF25%, US.10%)
portfoliol investmentsportfoliol investments: lending or purchases : lending or purchases include international flows of securities, loans include international flows of securities, loans and bank deposits. The investor does not own a and bank deposits. The investor does not own a large share of the enterprise being invested large share of the enterprise being invested in,but just investing as part of portfolio. in,but just investing as part of portfolio.
Official international reserveOfficial international reserve
Money-like assets that are held by Money-like assets that are held by government and that are generally government and that are generally recognized by government as fully recognized by government as fully acceptable for payments between acceptable for payments between them.them.
Statistical discrepancyStatistical discrepancy errors and omissionserrors and omissions
IIf the two sides of every transaction are f the two sides of every transaction are correctly recorded, there would not be correctly recorded, there would not be any stastitical discrepancy. The sum are any stastitical discrepancy. The sum are not equal, means thant any items were not equal, means thant any items were missed or to say anything were missed or to say anything were undermeasured. Eg. Private capital flows. undermeasured. Eg. Private capital flows. Underreport merchadise imports, income Underreport merchadise imports, income receipts and capital exports. (smuggling, receipts and capital exports. (smuggling, Drug trafficking)Drug trafficking)
贷方贷方 CreditCredit :: A credit item (+) is a flow A credit item (+) is a flow for which the country is paid.for which the country is paid.
Exports of goodsExports of goodsPurchases by foreigners in this countryPurchases by foreigners in this countryForeigners’ investing in the country’s Foreigners’ investing in the country’s
The macro meaning of current The macro meaning of current account balanceaccount balance
1.1. Financing and international financial Financing and international financial flows: Net foreign investment (Iflows: Net foreign investment (Iff).-).-对外净对外净
投资 投资 CA = ICA = Iff
2.2. National saving (S) versus domestic National saving (S) versus domestic investment (Iinvestment (Idd). ).
S = IS = Idd + I + Iff, so that , so that CA = S – ICA = S – Idd
3.3.Domestic production (Y) versus national Domestic production (Y) versus national expenditure (E). Y = C + Iexpenditure (E). Y = C + Idd + G +(X – M), + G +(X – M),
E = C + IE = C + Idd + G, and CA = (X – M) + G, and CA = (X – M)
B: the official settlements balance measures B: the official settlements balance measures the sum of the current account balance the sum of the current account balance plus the private capital account balanceplus the private capital account balance((净私人流动净私人流动 KAKA )) . .
B = CA+KAB = CA+KAAny imbalance in the official settlements Any imbalance in the official settlements
balance must be financed through official balance must be financed through official reserves flows: reserves flows: (官方储备资产(官方储备资产 OROR))
The international investment positionThe international investment position A statement of the stocks of a nation’s A statement of the stocks of a nation’s
international assets and foreign liabilities at a international assets and foreign liabilities at a point in timepoint in time
Flow vs. stock (lender or borrower vs. creditor or Flow vs. stock (lender or borrower vs. creditor or debtor)debtor)
Analysis of BOP StatementsAnalysis of BOP Statements
The meanings of The meanings of imbalance imbalance : : means the expenditure total amount means the expenditure total amount exceed receipts exceed receipts ,, or contrary circumstance or contrary circumstance in a country‘s balance of payments . The in a country‘s balance of payments . The former is BOPformer is BOP deficitdeficit ,, The latter is BOPThe latter is BOP surplussurplus ..———————————————— surplus surplus (( favorablefavorable ) :顺差) :顺差 deficitdeficit ( ( unfavorableunfavorable ):逆差):逆差
1. 1. balance of paymentsbalance of payments: a set of account : a set of account recording all flows of value between residents recording all flows of value between residents of a country and the rest of the world during a of a country and the rest of the world during a given period of time.given period of time.
22. capital inflow. capital inflow :an increase in a nation's :an increase in a nation's assets obtained from other countries or a assets obtained from other countries or a decrease in its liabilities to other countries.decrease in its liabilities to other countries.
33. capital outflow: . capital outflow: an increase in a nation's an increase in a nation's liabilities to foreign residents or a decrease in liabilities to foreign residents or a decrease in assets previously obtained from other assets previously obtained from other countries.countries.
4. 4. merchandise trade balance:merchandise trade balance: net credits net credits minus net debits on merchandise.minus net debits on merchandise.
5. 5. goods and services balance:goods and services balance: net exports net exports of goods and services.of goods and services.
6. 6. goods, services, and income balance:goods, services, and income balance:net income flows and net exports of goods net income flows and net exports of goods and services.and services.
7. 7. current account balance:current account balance: net credits net credits minus debits on the flows of goods, minus debits on the flows of goods, services, income, and unilateral transfers. services, income, and unilateral transfers.
8. capital account balance: 8. capital account balance: net credits minus net credits minus debits involving changes in private national debits involving changes in private national residents' foreign financial assets and liabilities. residents' foreign financial assets and liabilities. (pg.16)(pg.16)
9. official settlements balance: 9. official settlements balance: the sum of the the sum of the current account balance plus the private capital current account balance plus the private capital account balance. (an imbalance in the official account balance. (an imbalance in the official balance must be paid for through official balance must be paid for through official reverses transaction)reverses transaction)
10 official international reserves10 official international reserves :: money like money like assets such as gold that are generally assets such as gold that are generally recognized as official assetsrecognized as official assets
11 direct investments11 direct investments : : any flow of any flow of lending to, or purchases of ownership lending to, or purchases of ownership in, a foreign enterprise that is largely in, a foreign enterprise that is largely owned by residents of the investing owned by residents of the investing country. (IMF25%, U.S.10%)country. (IMF25%, U.S.10%)
Portfolio investmentPortfolio investment:: lending or lending or purchases include international flows of purchases include international flows of securities, loans and bank depositssecurities, loans and bank deposits. . The investor does not own a large The investor does not own a large share of the enterprise being invested share of the enterprise being invested in,but just investing as part of a in,but just investing as part of a diversified portfolio.diversified portfolio.
12 net foreign investment: 12 net foreign investment: the change in a the change in a nation's foreign assets minus foreign nation's foreign assets minus foreign liabilities.liabilities.
13 international investment position: 13 international investment position: the the net accumulation of foreign assets minus net accumulation of foreign assets minus foreign liabilities. foreign liabilities.
14 14 资本外逃 资本外逃 Capital flight:Capital flight: TheThe secret secret sending of wealth to foreign countries,sending of wealth to foreign countries, away from the supervision of one’s home away from the supervision of one’s home government.government.