Balance of Payments Why should International Businesspeople pay attention to the Balance of Payments Statistics?
Balance of Payments BOP statistics help identify emerging markets for goods and services. They can warn of possible new policies that may alter a nation’s business climate. They can indicate a reduction in a nation’s foreign reserves. They can indicate an increase in risk to lending to particular nations.
Major Components of the BOP Accounting System Current Account Capital Account Official Reserves Errors and Omissions
Current Account Exports and Imports of goods Exports and Imports of services Investment Income Gifts Key to whether it’s an export or an import; what is the direction of the flow of money? Money flows in = export. Money flows out = import.
Capital Account Records the purchases and sales of assets between residents of different countries. • Foreign Direct Investment (FDI) • Portfolio Investments
Official Reserves Gold Convertible Securities
Errors and Omissions Records the purchases and sales of assets between residents of different countries.
How will the BOP be affected? An American entrepreneur seeking to sell souvenirs at the 2004 Olympics in Athens pays Olympic Airlines, a Greek airline, $1,400 for a New York–Athens round-trip ticket. That entrepreneur instead pays United Airlines (an American airline) $1,400 for a New York-Athens round-trip ticket. Ford Motor Company (U.S) pays $2.5 billion for the Jaguar Motor Company (U.K.). The U.S. government gives Rwanda $500 million worth of food to feed starving refugees.
Additional Resources http://www.digitaleconomist.com/bop_4020.html http://www.investopedia.com/articles/03/060403.asp http://www.econlib.org/library/Enc/BalanceofPayments.html http://en.wikipedia.org/wiki/Balance_of_payments