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]
International Business College
Ph.D Associate Professor
E-mail: [email protected]
Double Entry Bookkeeping
the system of keeping accounts every payment appears twice in different accents once as a credit and once as a debit .
bookkeeping recording business transactions
Paul .A .Samuelson16p300
(flow of fund)
4500 -2450 2050end
1goodsfree of boardFOB
1.Financing and international financial flows: Net foreign investment (If).-
CA = If
National saving (S) versus domestic investment (Id).
S = Id + If, so that CA = S Id
gross domestic products GDP
gross national products GNP
C+I+G=Y=C+ SP+TI= SP +T-G
3.Domestic production (Y) versus national expenditure (E). Y = C + Id + G +(X M), E = C + Id + G, and CA = (X M) approximately, so that
CA = Y E
B: the official settlements balance measures the sum of the current account balance plus the private capital account balanceKA.
B = CA+KA
Any imbalance in the official settlements balance must be financed through official reserves flows: OR
The meanings of imbalance
means the expenditure total amount
exceed receipts or contrary circumstance
in a countrys balance of payments . The
former is BOPdeficitThe latter is BOP
1. above the line
below the line
Net Errors and Omissions
Current Account Balance
+ = 0
1. balance of payments: a set of account recording all flows of value between residents of a country and the rest of the world during a given period of time.
2. capital inflow :an increase in a nation's assets obtained from other countries or a decrease in its liabilities to other countries.
3. capital outflow: an increase in a nation's liabilities to foreign residents or a decrease in assets previously obtained from other countries.
4. merchandise trade balance:net credits minus net debits on merchandise.
5. goods and services balance:net exports of goods and services.
6. goods, services, and income balance:net income flows and net exports of goods and services.
7. current account balance: net credits minus debits on the flows of goods, services, income, and unilateral transfers.
8. capital account balance: net credits minus debits involving changes in private national residents' foreign financial assets and liabilities. (pg.16)
9. official settlements balance: the sum of the current account balance plus the private capital account balance. (an imbalance in the official balance must be paid for through official reverses transaction)
10 official international reservesmoney like assets such as gold that are generally recognized as official assets
11 direct investments any flow of lending to, or purchases of ownership in, a foreign enterprise that is largely owned by residents of the investing country. (IMF25%, U.S.10%)
Portfolio investment: lending or purchases include international flows of securities, loans and bank deposits. The investor does not own a large share of the enterprise being invested in,but just investing as part of a diversified portfolio.
12 net foreign investment: the change in a nation's foreign assets minus foreign liabilities.
13 international investment position: the net accumulation of foreign assets minus foreign liabilities.