MultinationalFinancialManagement（跨国公司财务管理）ch05InternationalEconomicLinkagesandBalanceofPayments

Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,CHAPTER 5,International Economic Linkages and Balance of Payments,PART I.,BALANCE-OF-PAYMENTCATEGORIES,A.THE BALANCE OF PAYMENTS(B-O-P),1.PURPOSE:,Measures all financial and economic transactions over a specified period of time.,BALANCE-OF-PAYMENTCATEGORIES,2.Double-entry bookkeeping,a.Currency inflows=credits earn foreign exchange,b.Currency outflows=debits expend foreign exchange,BALANCE-OF-PAYMENTCATEGORIES,3.Three Major Accounts:,a.Current,b.Capital,c.Official Reserves,4.Current Account,records net flow of goods,services,and unilateral transfers.,BALANCE-OF-PAYMENTCATEGORIES,5.Capital Account,a.Function:records public and private investment and lending.,b.Inflows=credits,c.Outflows=debits,BALANCE-OF-PAYMENTCATEGORIES,5.Capital Account(cont),d.Transactions classified as,1.)portfolio,2.)direct,3.)short term,BALANCE-OF-PAYMENTCATEGORIES,6.Official Reserves Account,a.Function:,1.)measures changes in international reserves owned by central banks.,2.)reflects surplus/deficit of,a.)current account,b.)capital account,BALANCE-OF-PAYMENTCATEGORIES,6.Official Reserves Account(cont),b.Reserves consist of,1.)gold,2.)convertible securities,BALANCE-OF-PAYMENTCATEGORIES,7.Net Effects:,a.Sum of all transactions must be zero:,1.)current account,2.)capital account,3.)official reserves,BALANCE-OF-PAYMENTCATEGORIES,8.The Balance-of-payment measures,a.Some Definitions:,1.),Basic Balance,a.)consists of current account and long-term capital flows.,BALANCE-OF-PAYMENTCATEGORIES,1.)Basic Balance(cont),b.)emphasizes long-term trends.,BALANCE-OF-PAYMENTCATEGORIES,1.)Basic Balance(cont),c.)excludes short-term capital flows that heavily depend on temporary factors.,BALANCE-OF-PAYMENT CATEGORIES,2.)Net Liquidity Balance:,measures the change in private domestic borrowing or lending require to keep payments equal without adjusting official reserves.,BALANCE-OF-PAYMENTCATEGORIES,3.)Official Reserve Transactions Balance,-measures adjustments needed by official reserves.,PART II.THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,II.LINKS FROM INTERNATIONAL TO DOMESTIC FLOWS,A.Global Linkages,set of basic macroeconomic identities which link:domestic spending and production to current and capital accounts,THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,B.Domestic Savings and Investment,and the Capital Account,1.National Income Accounting,a.National Income(NI)is either spent(C)or saved(S),NI=C +S(5.1),THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,b.National spending(NS)is,divided into personal spending(C)and investment(I),NS =C +I(5.2),THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,c.Subtracting(4.2)-(4.1),NI-NS =S -I(5.3),If NI NS,S I which implies that surplus capital spent overseas.,THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,d.In a freely-floating system,excess saving=the capital account balance,e.Implications:,1.A nation which produces more than it spends will save more than it invests domestically with a net capital outflow producing a capital account deficit.,THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,2.A nation which spends more than it produces has a net capital inflow producing a capital account surplus.,3.A healthy economy will tend to,run a current account deficit.,THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,C.THE LINK BETWEEN THE CURRENT AND CAPITAL ACCOUNTS,1.Beginning identity,NI-NS=X-M(5.4),where X =exports,M=imports,X-M=current account balance(CA),THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,2.Combining(5.3)+(5.4),S -I =X -M(5.5),3.If S-I=Net Foreign Investment (NFI),NFI =X -M(5.6),THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,4.Implications:,a.If CA is in surplus,the nation must be a net exporter of capital.,b.If CA is a deficit,the nation is a major capital importer.,c.When NS NI,the excess must be acquired through foreign trade.,THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,d.Solutions for Improving CA deficits:,1.)Raise national income(output),relative to domestic investment(I).,2.)Increase(S)relative to domestic investment(I).,THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,D.GOVERNMENT BUDGETS AND CURRENT ACCOUNT DEFICITS,1.,CURRENT ACCOUNT BALANCE,CA=Saving Surplus-Govt budget deficit,THE INTERNATIONAL FLOW OF GOODS,SERVICES,AND CAPITAL,2.CA Deficit means,the nation is not saving enough to finance(I)and the deficit.,3.CA Surplus means,the nation is saving more than needed to finance its(I)and deficit.,PART III.COPING WITH THE CURRENT ACCOUNT DEFICIT,I.POSSIBLE SOLUTIONS,UNLIKELY,TOWORK:,A.Currency Depreciation,B.Protectionism,COPING WITH THE CURRENT ACCOUNT DEFICIT,II.CURRENCY DEPRECIATION,A.U.S.Experience:,Does not improve the trade deficit.,COPING WITH THE CURRENT ACCOUNT DEFICIT,B.Depreciations are ineffective because,1.It takes time to affect trade.,2.J-Curve Effect,states that a decline in currency value will initially worsen