Ch 27 - Balance of Payments

Appreciation

Appreciation

________: as exports increase, demand for the currency increases and the value of the currency increases.

Reserve assets

________: foreign currencies purchased to be used by the central bank in its monetary policy.

Expenditure

________ reducing policies: policies aim to reduce the real spending of consumers.

Current account deficit

________: the country is a net borrower to the rest of the world.

Capital transfers

________: debt forgiveness, non- life insurance claims and investment grants.

Components of BOP

________: total current account must balance with total of capital and financial accounts.

domestic consumption

Lower ________ and investment: currency appreciates, imports will become more affordable compared to domestic products so consumption of domestic products falls.

Direct investment

investment in physical capital usually undertaken by multinational corporations

Portfolio investment

purchase of shares and bonds

Reserve assets

foreign currencies purchased to be used by the central bank in its monetary policy

Capital transfers

debt forgiveness, non-life insurance claims and investment grants

Non-financial asset transfers

purchase or use of natural resources that have no been produced

Current transfers

transfers of money where nothing is received in return

Components of BOP

total current account must balance with total of capital and financial accounts

Balance of payments

record financial transcripts made between consumers, businesses and the government in one country with others

Balance of payments

record financial transcripts made between consumers, businesses and the government in one country with others

Current transfers

transfers of money where nothing is received in return

Non-financial asset transfers

purchase or use of natural resources that have no been produced

Portfolio investment

purchase of shares and bonds

Direct investment

investment in physical capital usually undertaken by multinational corporations

Current account balance

sum of capital account and financial account balances

Current account surplus

indicates that the country is a net leader to the rest of the world

Current account deficit

the country is a net borrower to the rest of the world

Reduced export competitiveness

currency appreciates, in a floating exchange rate, exports become comparatively more expensive as demand for exports fall

Lower domestic consumption and investment

currency appreciates, imports will become more affordable compared to domestic products so consumption of domestic products falls

Expenditure switching policies

devaluing exchange rate, tariffs and policies to reduce inflation

Expenditure reducing policies

policies aim to reduce the real spending of consumers

Supply-side policies

to improve the countrys productivity in order to improve its exports competitiveness