INTERNATIONAL
FINANCIAL
MANAGEMENT
EUN / RESNICK
Second Edition
3Chapter ThreeThe Balance of Payments
Chapter Objective:
This chapter serves to introduce the student to the
balance of payments,How it is constructed and how
balance of payments data may be interpreted.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-1
Chapter Three Outline
? Balance of Payments Accounting
? Balance of Payments Accounts
? The Current Account
? The Capital Account
? Statistical Discrepancy
? Official Reserves Account
? The Balance of Payments Identity
? Balance of Payments Trends in Major
Countries
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-2
Balance of Payments Accounting
? The Balance of Payments is the statistical record
of a country’s international transactions over a
certain period of time presented in the form of
double-entry bookkeeping.
N.B,when we say,a country’s balance of
payments” we are referring to the transactions of
its citizens and government.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-3
Balance of Payments Example
? Suppose that Maplewood Bicycle in
Maplewood Missouri,USA imports
$100,000 worth of bicycle frames from
Mercian Bicycles in Darby England,
? There will exist a $100,000 credit recorded
by Mercian that offsets a $100,000 debit at
Maplewood’s bank account.
? This will lead to a rise in the supply of
dollars and the demand for British pounds.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-4
? The balance of payments accounts are those that
record all transactions between the residents of a
country and residents of all foreign nations.
? They are composed of the following:
? The Current Account
? The Capital Account
? Statistical Discrepancy
? The Official Reserves Account
Balance of Payments Accounts
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-5
The Current Account
? Includes all imports and exports of goods and
services.
? Includes unilateral transfers of foreign aid.
? If the debits exceed the credits,then a country is
running a trade deficit.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-6
The Capital Account
? The capital account measures the difference
between U.S,sales of assets to foreigners and U.S,
purchases of foreign assets.
? The U.S,enjoys about a $150,000,000,000 capital
account surplus—absent of U.S,borrowing from
foreigners,this ―finances‖ our trade deficit.
? The capital account is composed of Foreign Direct
Investment (FDI),portfolio investments and other
investments.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-7
Statistical Discrepancy
? There’s going to be some omissions and
misrecorded transactions—so we use a ―plug‖
figure to get things to balance.
? Exhibit 3.1 shows a discrepancy of $96.76 billion
in 1997.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-8
The Official Reserves Account
? Official reserves assets include gold,foreign
currencies,SDRs,reserve positions in the IMF.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-9
The Balance of Payments Identity
BCA + BKA + BRA = 0
where
BCA = balance on current account
BKA = balance on capital account
BRA = balance on the reserves account
Under a pure flexible exchange rate regime,
BCA + BKA = 0
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-10
U.S,Balance of Payments Data
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-11
U.S,Balance of Payments Data
In 1997,the
U.S,imported
more than it
exported,thus
running a
current account
deficit of
$166.8 billion.
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-12
U.S,Balance of Payments Data
During the same
year,the U.S,
attracted net
investment of
$264.58
billion—clearly
the rest of the
world found the
U.S,to be a
good place to
invest.
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-13
U.S,Balance of Payments Data
Under a pure
flexible
exchange rate
regime,these
numbers would
balance each
other out.
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-14
U.S,Balance of Payments Data
In the real
world,there
is a statistical
discrepancy,
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-15
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
U.S,Balance of Payments Data
Including that,
the balance of
payments identity
should hold:
BCA + BKA = - BRA
($166.80) + $264.58 + ($96.76) = $1.02= –($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-16
Balance of Payments and the
Exchange Rate
Q
P S
D
Exchange rate $
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-17
Balance of Payments and the
Exchange Rate
Q
P S
D
Exchange rate $
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
As U.S,citizens import,they are supply dollars to the FOREX market.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-18
Balance of Payments and the
Exchange Rate
Q
P S
D
Exchange rate $
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
As U.S,citizens export,others demand dollars at the FOREX market.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-19
Balance of Payments and the
Exchange Rate
Q
P S
D
Exchange rate $
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
As the U.S,government sells dollars,the supply of dollars increases.
S1
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-20
Balance of Payments Trends
? Since 1982 the U.S,has experienced continuous
deficits on the current account and continuous
surpluses on the capital account.
? During the same period,Japan has experienced the
opposite.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-21
Balance of Payments Trends
U, S,B a l a n c e o f Pa y m e n ts T r e n d s
- 2 0 0
- 1 5 0
- 1 0 0
- 5 0
0
50
100
150
200
1982 1984 1986 1988 1990 1992 1994 1996
Y e a r
B
a
l
a
nc
e
of
P
a
y
m
e
nt
s
(
$
b)
C u r r e n t A c c o u n t
C a p i t a l A c c o u n t
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-22
Balance of Payments Trends
J a p a n ' s B a l a n c e o f Pa y m e n ts T r e n d
- 1 5 0
- 1 0 0
- 5 0
0
50
100
150
1982 1984 1986 1988 1990 1992 1994 1996
Y e a r
B
a
l
a
nc
e
of
P
a
y
m
e
nt
s
(
$
b)
C u r r e n t A c c o u n t
C a p i t a l A c c o u n t
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-23
Balance of Payments Trends
? Germany traditionally had current account
surpluses.
? Since 1991 Germany has been experiencing
current account deficits.
? This is largely due to German reunification and
the resultant need to absorb more output
domestically to rebuild the former East Germany,
? What matters is the nature and causes of the
disequilibrium.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-24
Balance of Payments Trends
G e r m a n y ' s B a l a n c e o f P a y m e n ts Tr e n d
- 8 0
- 6 0
- 4 0
- 2 0
0
20
40
60
80
1982 1984 1986 1988 1990 1992 1994 1996
Y e a r
B
a
l
a
nc
e
of
P
a
y
m
e
nt
s
(
$
b)
C u r r e n t A c c o u n t
C a p i t a l A c c o u n t
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-25
End Chapter Three
FINANCIAL
MANAGEMENT
EUN / RESNICK
Second Edition
3Chapter ThreeThe Balance of Payments
Chapter Objective:
This chapter serves to introduce the student to the
balance of payments,How it is constructed and how
balance of payments data may be interpreted.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-1
Chapter Three Outline
? Balance of Payments Accounting
? Balance of Payments Accounts
? The Current Account
? The Capital Account
? Statistical Discrepancy
? Official Reserves Account
? The Balance of Payments Identity
? Balance of Payments Trends in Major
Countries
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-2
Balance of Payments Accounting
? The Balance of Payments is the statistical record
of a country’s international transactions over a
certain period of time presented in the form of
double-entry bookkeeping.
N.B,when we say,a country’s balance of
payments” we are referring to the transactions of
its citizens and government.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-3
Balance of Payments Example
? Suppose that Maplewood Bicycle in
Maplewood Missouri,USA imports
$100,000 worth of bicycle frames from
Mercian Bicycles in Darby England,
? There will exist a $100,000 credit recorded
by Mercian that offsets a $100,000 debit at
Maplewood’s bank account.
? This will lead to a rise in the supply of
dollars and the demand for British pounds.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-4
? The balance of payments accounts are those that
record all transactions between the residents of a
country and residents of all foreign nations.
? They are composed of the following:
? The Current Account
? The Capital Account
? Statistical Discrepancy
? The Official Reserves Account
Balance of Payments Accounts
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-5
The Current Account
? Includes all imports and exports of goods and
services.
? Includes unilateral transfers of foreign aid.
? If the debits exceed the credits,then a country is
running a trade deficit.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-6
The Capital Account
? The capital account measures the difference
between U.S,sales of assets to foreigners and U.S,
purchases of foreign assets.
? The U.S,enjoys about a $150,000,000,000 capital
account surplus—absent of U.S,borrowing from
foreigners,this ―finances‖ our trade deficit.
? The capital account is composed of Foreign Direct
Investment (FDI),portfolio investments and other
investments.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-7
Statistical Discrepancy
? There’s going to be some omissions and
misrecorded transactions—so we use a ―plug‖
figure to get things to balance.
? Exhibit 3.1 shows a discrepancy of $96.76 billion
in 1997.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-8
The Official Reserves Account
? Official reserves assets include gold,foreign
currencies,SDRs,reserve positions in the IMF.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-9
The Balance of Payments Identity
BCA + BKA + BRA = 0
where
BCA = balance on current account
BKA = balance on capital account
BRA = balance on the reserves account
Under a pure flexible exchange rate regime,
BCA + BKA = 0
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-10
U.S,Balance of Payments Data
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-11
U.S,Balance of Payments Data
In 1997,the
U.S,imported
more than it
exported,thus
running a
current account
deficit of
$166.8 billion.
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-12
U.S,Balance of Payments Data
During the same
year,the U.S,
attracted net
investment of
$264.58
billion—clearly
the rest of the
world found the
U.S,to be a
good place to
invest.
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-13
U.S,Balance of Payments Data
Under a pure
flexible
exchange rate
regime,these
numbers would
balance each
other out.
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-14
U.S,Balance of Payments Data
In the real
world,there
is a statistical
discrepancy,
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-15
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
U.S,Balance of Payments Data
Including that,
the balance of
payments identity
should hold:
BCA + BKA = - BRA
($166.80) + $264.58 + ($96.76) = $1.02= –($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-16
Balance of Payments and the
Exchange Rate
Q
P S
D
Exchange rate $
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-17
Balance of Payments and the
Exchange Rate
Q
P S
D
Exchange rate $
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
As U.S,citizens import,they are supply dollars to the FOREX market.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-18
Balance of Payments and the
Exchange Rate
Q
P S
D
Exchange rate $
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
As U.S,citizens export,others demand dollars at the FOREX market.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-19
Balance of Payments and the
Exchange Rate
Q
P S
D
Exchange rate $
Credits Debits
Current Account
1 Exports $1,167.61
2 Imports ($1,295.53)
3 Unilateral Transfers $6.13 ($45.01)
Balance on Current Account ($166.80)
Capital Account
4 Direct Investment $107.93 ($119.44)
5 Portfolio Investment $387.62 ($79.28)
6 Other Investments $194.95 ($227.2)
Balance on Capital Account $264.58
7 Statistical Discrepancies ($96.76)
Overall Balance $1.02
Official Reserve Account ($1.02)
As the U.S,government sells dollars,the supply of dollars increases.
S1
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-20
Balance of Payments Trends
? Since 1982 the U.S,has experienced continuous
deficits on the current account and continuous
surpluses on the capital account.
? During the same period,Japan has experienced the
opposite.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-21
Balance of Payments Trends
U, S,B a l a n c e o f Pa y m e n ts T r e n d s
- 2 0 0
- 1 5 0
- 1 0 0
- 5 0
0
50
100
150
200
1982 1984 1986 1988 1990 1992 1994 1996
Y e a r
B
a
l
a
nc
e
of
P
a
y
m
e
nt
s
(
$
b)
C u r r e n t A c c o u n t
C a p i t a l A c c o u n t
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-22
Balance of Payments Trends
J a p a n ' s B a l a n c e o f Pa y m e n ts T r e n d
- 1 5 0
- 1 0 0
- 5 0
0
50
100
150
1982 1984 1986 1988 1990 1992 1994 1996
Y e a r
B
a
l
a
nc
e
of
P
a
y
m
e
nt
s
(
$
b)
C u r r e n t A c c o u n t
C a p i t a l A c c o u n t
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-23
Balance of Payments Trends
? Germany traditionally had current account
surpluses.
? Since 1991 Germany has been experiencing
current account deficits.
? This is largely due to German reunification and
the resultant need to absorb more output
domestically to rebuild the former East Germany,
? What matters is the nature and causes of the
disequilibrium.
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-24
Balance of Payments Trends
G e r m a n y ' s B a l a n c e o f P a y m e n ts Tr e n d
- 8 0
- 6 0
- 4 0
- 2 0
0
20
40
60
80
1982 1984 1986 1988 1990 1992 1994 1996
Y e a r
B
a
l
a
nc
e
of
P
a
y
m
e
nt
s
(
$
b)
C u r r e n t A c c o u n t
C a p i t a l A c c o u n t
McGraw-Hill/Irwin Copyright ? 2001 by The McGraw-Hill Companies,Inc,All rights
reserved,
3-25
End Chapter Three
