THE BALANCE OF PAYMENTS, EXCHANGE RATES, INTERNATIONAL RESERVES

Balance of Payment

Record of the composition of the current account balance and the many transactions that finance it

Balance of Payment

Record of the transactions which includes the export and import of goods, service, tourist expenditure, interest or dividends received or paid abroad, and purchase and sales of financial and real assets abroad between the residents of a country with the rest of the world

Current Account

TWO TYPES OF ACCOUNTS IN THE NATION’S BOP RECORDS
Contains all the nation’s transactions that involve the import and export of current production of goods and services as transfer payments

Merchandise Trade

Components of Imports and Exports
consists of trade in goods

Exports

Expenditures of the foreigners on domestically produced goods

Imports

Refers to the domestics expenditures on freign goods

Investment Income

Components of Imports and Exports
Consists of international interest and dividend payments and the earnings of domestically owned firms operating abroad

Other services

Components of Imports and Exports
Include payments for legal assistance, tourists’ expenditures, freight and shipping fees, royalty payment, interest sand profits on asset abroad

Transfer Payments

Components of Imports and Exports
Remittances of domestic residents working abroad, gifts, and grants

Capital Account

TWO TYPES OF ACCOUNTS IN THE NATION’S BOP RECORDS
Records all the international transactions involving the purchase or sale of assets or any existing form of wealth which are the results of past production

Capital Account

TWO TYPES OF ACCOUNTS IN THE NATION’S BOP RECORDS
Measures the difference between sales of assets to foreigner and purchases assets located abroad

Assets

Consists partly of tangible producers’ and consumer’s durable goods:
Land and natural resources
Financial aspects

EQUILIBRIUM IN BOP

The nation’s total receipts from the rest of the world must be equal to the total payments it made to the foreigners.

current and capital

BOP is composed of both ___________accounts then for BOP equilibrium exists

negative

If the subtotal called the current account shows a positive balance then subtotal called the capital account must show an equivalent ________balance and vice-versa

BOP disequilibrium

Any inequality of the left and right hand side of the above equation will mean

BOP deficit

if the nation’s payment to the foreigners exceeds the receipts from them. A currency is borrowing or accumulating debts from abroad

BOP surplus

if the nation’s receipts from the rest of the world exceed the payments made to them

FOREIGN EXCHANGE

The currency of countries other than one’s own used to make international payments. Influence the investment and production of the agriculture sector.

Foreign Exchange Market

Market at which trading international currencies take place

Exchange Rate

Measures how many peso are required to buy a dollar worth of goods. The price in domestic currency of a unit of foreign exchange example the Peso per dollar

Flexible or Floating Exchange Rate System

Demand and supply determine exchange rates and in which no government intervention occurs

Flexible or Floating Exchange Rate System

An exchange rate which freely determined by forces of supply and demand through foreign exchange dealers

Fixed Exchange Rate System

Government determines exchange rates and makes necessary adjustments in their economies to maintain those rates

Changes in taste

Determinants of Exchange Rates
Change is tastes and preferences for the products of a foreign country may alter the demand for that nation’s currency and exchange rate

Relative income changes

Determinants of Exchange Rates
Nation’s likely to depreciate if its growth of national income is more rapid than that of other countries

Relative interest rates

Determinants of Exchange Rates
Changes in relative interest rates of two countries may alter their exchange rates

Speculations

Determinants of Exchange Rates
Currency speculators are people who buy and sell currency with an eye toward reselling or purchasing for a profit

Cable or Telegraphic transfer

An importer in the Philippines with a payment to make abroad would pay in pesos to the Philippine bank which would cable its branch or its foreign correspondents to make payments in foreign currency to the exporter abroad
refers to international money transfers made from one account to another. It's synonymous with terms like bank transfer, wire transfer, or SWIFT transfer

Bank drafts

Checks drawn by one bank to another sometime used instead of telegraphic transfer, asking a bank to write a cheque for you