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CHAPTER 5 : BALANCE OF
PAYMENT
BY : SITI NURAMEELIA BINTI ZULKIFLI NUR SHAFINAZ BINTI KAMARUDDIN
(10 marks)
There are 4 major accounts: 1. 2. 3. 4. Current Account Capital Account Official Reserves Account Errors and Omissions Account
1. CURRENT ACCOUNT
- Records 4 types of transaction: i. Exports and imports of goods . For example cotton, rice. if import > export (deficit) If export > import (surplus) ii. Exports and imports of services. For example banking services, health services iii. Investment income Government sell bond to foreigners to get money iv. Gifts private and public gifts between residents of one country and
another. Ex: Indonesia maid who send part of their earnings back
home to their relatives (private gift) While government aid from Malaysia used for a tsunami victims in
2. CAPITAL ACCOUNT
Records purchases and sales of assets between residents of one country and other countries Can be divided into 2 (Foreign Direct Investment and Foreign Portfolio Investment)
Maturity Motivation Typical Investment
> 1 year
Indeterminate
Portfolio (long-term)
Selling a domestic long-term asset to a foreigner (not for purpose of control) Selling a domestic asset to a foreigner for purpose of control
FDI
i. Help identify emerging markets for goods and services Emerging markets means that new market (country) is open to any companies (from other countries) to do international business It is because before this, country operate closed economy, for example China By looking at BOP, it will shows that a country is open to FDI if more investment flowing into the country
ii. Warn of possible new policies BOP problem arises when an economy has to take loans in
iii. Indicate reductions in a countrys foreign exchange reserves When the official reserve account keep decreasing, it indicates that a country lost it strength to face problems (e.g.: tsunami) in the future The amount of official reserve normally last for 10 years (if
iv. Risk of lending to particular countries During economic downturn, there is possibility of unable to pay
1.
2. 3. 4.
Current Account
Capital Account Official Reserves Account Errors and Omissions Account
1. CURRENT ACCOUNT
- Records 4 types of transaction: i. Exports and imports of goods . For example cotton, rice. if import > export (deficit) If export > import (surplus) ii. Exports and imports of services. For example banking services, health services iii. Investment income Government sell bond to foreigners to get money iv. Gifts private and public gifts between residents of one country and
another. Ex: Indonesia maid who send part of their earnings back
home to their relatives (private gift) While government aid from Malaysia used for a tsunami victims in
2. CAPITAL ACCOUNT
Records purchases and sales of assets between residents of one country and other countries Can be divided into 2 (Foreign Direct Investment and Foreign Portfolio Investment)
Maturity Motivation Typical Investment
> 1 year
Indeterminate
Portfolio (long-term)
Selling a domestic long-term asset to a foreigner (not for purpose of control) Selling a domestic asset to a foreigner for purpose of control
FDI
FORECAST QUESTION
Discuss the major components of the Balance of Payment Accounting System
1.
2. 3. 4.
Current Account
Capital Account Official Reserves Account Errors and Omissions Account
1. CURRENT ACCOUNT
- Records 4 types of transaction: i. Exports and imports of goods . For example cotton, rice. if import > export (deficit) If export > import (surplus) ii. Exports and imports of services. For example banking services, health services iii. Investment income Government sell bond to foreigners to get money iv. Gifts private and public gifts between residents of one country and
another. Ex: Indonesia maid who send part of their earnings back
home to their relatives (private gift) While government aid from Malaysia used for a tsunami victims in
2. CAPITAL ACCOUNT
Records purchases and sales of assets between residents of one country and other countries Can be divided into 2 (Foreign Direct Investment and Foreign Portfolio Investment)
Maturity Motivation Typical Investment
> 1 year
Indeterminate
Portfolio (long-term)
Selling a domestic long-term asset to a foreigner (not for purpose of control) Selling a domestic asset to a foreigner for purpose of control
FDI