ECON 203 Lecture Notes - Lecture 14: The Foreign Exchange, Foreign Exchange Market, Capital Account

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bronzemammoth297

2 Feb 2017

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The balance of payments records transactions between residents of one country and the rest of the world. The current account shows the trade balance plus net international transfer payments, and income earned on holdings of foreign assets. The capital account shows net purchases and sales of foreign assets. The balance of payments is the sum of the current and capital account balances. (14. 1) The trade in financial assets recorded in the capital account is based on the total return expected from holding foreign rather than domestic assets. (14. 1) The total return on holdings of foreign assets depends on the interest rate differential between countries and the change in the exchange rate during the period in which assets are held. Perfect international capital mobility means that an enormous quantity of funds shifts between currencies when the perceived rate of return differs across currencies. (14. 1)

Related Questions

The following table lists balance of payment current accounts for Country A.

Current Accounts
1.	Exports of goods, services, and income		$169,928
2.	Goods, adjusted, excluding military	$94,068
3.	Services	46,889
4.	Income receipts on U.S. assets abroad	31,921
5.	Imports of goods, services, and income		151,536
6.	Goods, adjusted, excluding military	84,707
7.	Services	32,289
8.	Income payments on foreign assets in the United States	35,740
9.	Unilateral transfers, net		9,481
A. What is Country A's total current accounts? _________$ Total current accounts B. What is Country A's balance on goods? _________$ Balance on goods C. What is Country A's balance on services? __________$ Balance on services D. What is Country A's balance on investment income? (Negative amount should be indicated by a minus sign.) __________$ Balance on investment income

ambercicada67

Exports of goods & services	$1000
Imports of goods & services	$800
The net change in assets owned abroad	$590
The net change in foreign-owned assets at home	$400
Unilateral transfers received	$100
Unilateral transfers paid	$200
Investment income paid to foreigners	$300
Investment income received from foreigners	$400
The balance on the capital account	$0

1. The balance on the current account is A) $100. B) $200. C) 0. D) - $100

2. The balance on the financial account is A) -$90. B) -$190. C) $100. D) $200

3. The statistical discrepancy is A) -$5. B) $5. C) $10. D) -$10

4. From the domestic economy's perspective,

A) there is a net international capital inflow equal to $190.

B) there is a net international capital outflow equal to $190.

C) the net international capital flow is zero.

D) its domestic absorption exceeds its GNP by $200.

orangewildebeest926

QUESTION 10

Below is a table for the Balance of Payments of Goegania, a prosperous island nation.

Current Account			Financial Account
Exports of Goods	$1,940		Capital Inflow	$661
Imports of Goods	???		Capital Outflow	$347
Trade Balance		???	Financial Account		???
Exports of Services	$569		Capital Account		$0
Imports of Services	???		Statistical Discrepancy		$0
Services Balance		$16	Balance of Payments		???
Income Received on Investments	$704
Income Paid on Investments	$505
Net Income on Investments		???
Net Transfers		$-168
The balance on the Current Account		???

Given this information, what is the value for the imports of goods?

Sometimes this question generates some weird numbers. Remember that you would always add the values in a category to get the total. So the total for the Financial Account is always Capital Inflow + Capital Outflow and the Trade Balance is always Exports + Imports for this table. It's just that sometimes those values being added are negative. If you get a negative answer, you should enter in the negative.

lavendertermite76

ECON 203 Lecture Notes - Lecture 14: The Foreign Exchange, Foreign Exchange Market, Capital Account

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