Slide 13-1Copyright © 2003 Pearson Education, Inc. The Capital Account It records capital asset transfers and tends to be small for the United States.

Slide 13-1

Copyright © 2003 Pearson Education, Inc.

The Capital Account• It records capital asset transfers and tends to be small

for the United States.• For the most part they result form nonmarket actitives,

or represent the acquisition or disposal of nonproduced, nonfinancial, and possibly intangible assets (such as copyrights and trademarks).

– “Exporting”(selling) capital assets is entered into capital account as a credit(+).

– “importing”(purchasing) capital assets is entered into capital account as a debit(-).

The Balance of Payments Accounts

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The Financial Account• It measures the difference between sales of assets to

foreigners and purchases of assets located abroad.– Financial inflow (capital inflow)

– A loan from the foreigners with a promise that they will be repaid

– “Exporting”(selling) financial assets is entered into financial account as a credit(+).

– Financial outflow (capital outflow)– A transaction involving the purchase of an asset from

foreigners– “importing”(purchasing) financial assets is entered into

financial account as a debit(-).


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The Fundamental Balance of Payments Identity• Any international transaction automatically gives rise

to two offsetting entries in the balance of payments resulting in a fundamental identity:

Current account + financial account + capital account = 0 (12-3)


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The Balance of Payments AccountsTable 12-2: U.S. Balance of Payments Accounts for 2000

(billions of dollars)

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The Balance of Payments AccountsTable 12-2: Continued

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The Statistical Discrepancy• Data associated with a given transaction may come

from different sources that differ in coverage, accuracy, and timing.

– This makes the balance of payments accounts seldom balance in practice.

– Account keepers force the two sides to balance by adding to the accounts a statistical discrepancy.

– It is very difficult to allocate this discrepancy among the current, capital, and financial accounts.


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Official Reserve Transactions• One type of financial account, involving the purchase or sale of official

reserve assents by central bank.– An increase in official reserve assets.– That is, international reserve held by the Federal Reserve is entered into

financial account as a debit(-), means an increase in U.S. owned assets held abroad, that is, an”import”of assets from foreigners.

– Example:A U.S. auto dealer imports a Volkswagen from Germany and pays the auto company with a check for $15,000, Volkswagen does not want to invest the money in dollar assets, but it so happens that the Bundesbank is willing to give Volkswagen German money in exchange for the $15,000 check.The Bundes bank’s international reserves rise by $15,000, therefore, this transaction results in a negative $15,000 entry in the German financial account.(and a positive $15,000 entry in the U.S. financial account)


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• Central bank– The institution responsible for managing the supply of

money• Official international reserves

– Foreign assets held by central banks as a cushion against national economic misfortune

• Official foreign exchange intervention– Central banks often buy or sell international reserves in

private asset markets to affect macroeconomic conditions in their economies.


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• Official settlements balance (balance of payments)– The book-keeping offset to the balance of official

reserve transactions– It is the sum of the current account balance, the capital

account balance, the nonreserve portion of the financial account balance, and the statistical discrepancy.

– Example: The U.S. balance of payments in 2000 was -$35.6 billion, that is, the balance of official reserve transactions with its sign reversed.

– A country with a negative balance of payments may signal that it is running down its international reserve assets or incurring debts to foreign monetary authorities.


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The Balance of Payments AccountsTable 12-3: Calculating the U.S. Official Settlements Balance for 2000

(billions of dollars)

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The Balance of Payments AccountsTable 12-3: Continued

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Case Study: Is the United States the World’s Biggest Debtor?• At the end of 1999, the United States had a negative

net foreign wealth position far greater than that of any other single country.

• The United States is the world’s biggest debtor.• However, the United States has the world’s largest

GNP.


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Summary

A country’s GNP is equal to the income received by its factors of production.• GDP is equal to GNP less net receipts of factor income

from abroad, measures the output produced within a country’s territorial borders.

In a closed economy, GNP must be consumed, invested, or purchased by the government.

In an open economy, GNP equals the sum of consumption, investment, government purchases, and net exports of goods and services.

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Summary

All transactions between a country and the rest of the world are recorded in its balance of payments accounts.

The current account equals the country’s net lending to foreigners. • National saving equals domestic investment plus the

current account.• Transactions involving goods and services appear in

the current account of the balance of payments, while international sales or purchases of assets appear in the financial account.

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Summary

The capital account records asset transfers and tends to be small in the United States.

Any current account deficit must be matched by an equal surplus in the other two accounts of the balance of payments, and any current account surplus by a deficit somewhere else.

International asset transactions carried out by central banks are included in the financial account.

Chapter 13Chapter 13Exchange Rates and the Foreign Exchange Market:Exchange Rates and the Foreign Exchange Market:

An Asset ApproachAn Asset Approach

Prepared by Iordanis PetsasTo Accompany

International Economics: Theory and PolicyInternational Economics: Theory and Policy, Sixth Editionby Paul R. Krugman and Maurice Obstfeld

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Introduction Exchange Rates and International Transactions The Foreign Exchange Market The Demand for Foreign Currency Assets Equilibrium in the Foreign Exchange Market Interest Rates, Expectations, and Equilibrium Summary

Chapter Organization

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Introduction

Exchange rates are important because they enable us to translate different counties’ prices into comparable terms.

Exchange rates are determined in the same way as other asset prices.

The general goal of this chapter is to show: • How exchange rates are determined• The role of exchange rates in international trade

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Exchange Rates and International Transactions

An exchange rate can be quoted in two ways:• Direct

– The price of the foreign currency in terms of dollars– For example:$0.008139 per yen

• Indirect– The price of dollars in terms of the foreign currency

– For example:¥122.87 per dollar

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Table 13-1: Exchange Rate Quotations1外幣值多少 $

每一美元值多少外幣

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Domestic and Foreign Prices• If we know the exchange rate between two countries’

currencies, we can compute the price of one country’s exports in terms of the other country’s money.

– Example: The dollar price of a £50 sweater with a dollar exchange rate of $1.50 per pound is (1.50 $/£) x (£50) = $75.


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• Two types of changes in exchange rates:

– Depreciation of home country’s currency– A rise in the home currency prices of a foreign

currency 說明– Appreciation of home country’s currency

– A fall in the home price of a foreign currency


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Table 13-2: $/£ Exchange Rates and the Relative Price of American Designer Jeans and British Sweaters 返回

Exchange rate ($/£) 1.25 1.50 1.75Pound price of jeans (£) 36 30 25.71

Dollar price of sweaters($) 62.5 75 87.5Relative price of sweaters in terms of

jeans(pairs of jeans/ sweaters) 1.39 1.67 1.94

Note:The above calculations assume unchanged money price of $45 per pair of jeans and £50 per sweater.

說明說明說明

Slide 13-1Copyright © 2003 Pearson Education, Inc. The Capital Account It records capital asset transfers and tends to be small for the United States.

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