1. International Economic Activities of Nations
INTERNATIONAL BUSINESS
CHAPTER 6
Chunni Yang
TFSU

2. Learning Objectives The Composition of BOP Accounts
How are the BOP Accounts Balanced
The Mechanics of International Economic Crises

3. Balance of Payments Two General Principles
Important Sections of the Balance of Payments
Equilibrium of BOP

4. Balance of Payments 1. Two General Principles
distinction between domestic residents and foreigners
double-entry system

5. Balance of Payments
2. Important Sections of the Balance of Payments

6. Balance of Payments (2) The Capital and Financial Account
2. Important Sections of the Balance of Payments
(1) The Current Account
(2) The Capital and Financial Account
(3) The Official Reserve Account
(4) Net Errors and Omissions

7. Balance of Payments 2. Important Sections of the Balance of Payments
(1) The Current Account
Table 6-2: Global Balances on Current Account,
(in billions of dollars)
1997
1998
1999
2000
2001
2002
2003
Current account balance
15.8
-59.1
-101.8
-125.7
-128.9
-101.1
-37.0
Goods balance
115.8
67.9
42.1
10.3
-6.9
35.6
66.5
Credit
5563.1
5452.1
5654.9
6377.2
6115.7
6393.8
7443.5
Debit
5447.4
5384.2
5612.8
6366.9
6122.7
6358.3
7377.1
Services balance
-8.5
-1.5
-13.5
-13.8
-18.4
-9.2
4.9
1363.4
1389.3
1436.0
1521.3
1527.3
1638.5
1858.8
1371.9
1390.8
1449.5
1535.1
1545.8
1647.6
1853.9
Transportation
-55.0
-52.4
-50.6
-63.7
-58.7
-54.0
-66.7
Travel
25.2
27.6
28.0
31.2
28.8
30.3
34.4
Gov’t services
-8.3
-17.9
-25.2
-26.1
-33.3
-33.0
Other services
35.1
31.6
27.1
43.9
37.6
47.9
70.2
Income balance
-66.5
-93.5
-97.0
-78.7
-77.2
-103.9
-76.0
1105.5
1205.7
1246.3
1423.0
1328.9
1250.7
1423.5
1172.0
1299.2
1343.3
1501.7
1406.1
1354.7
1499.5
Compensation of employees
1.5
-0.5
-0.3
-3.3
-3.1
Reinvested earnings
56.7
36.1
72.0
67.1
103.1
73.3
110.2
Other direct investment①
-0.2
-1.9
-37.7
-34.7
-42.4
-31.9
-50.4
Portfolio and others②
-124.5
-127.2
-131.1
-109.5
-134.6
-142.2
-132.6
Current transfers balance
-25.0
-32.0
-33.4
-43.5
-26.3
-23.5
-32.3
355.5
369.3
376.6
361.2
381.3
423.1
492.3
380.5
401.3
410.0
404.7
407.7
446.7
524.6
① Refer to other direct investment income
② Refer to portfolio and other investment income
Source: IMF, Balance of Payments Statistics Yearbook 2004.

8. Balance of Payments 2. Important Sections of the Balance of Payments
(2) The Capital and Financial Account
Table 6-3: Global Balances on Capital and Financial Accounts,
(in billions of dollars)
1997
1998
1999
2000
2001
2002
2003
Capital account balance
3.0
-15.0
-17.1
13.3
-4.9
-11.8
-15.3
Credit
51.4
45.1
48.8
70.3
53.1
58.2
55.1
Debit
48.4
60.1
65.8
56.9
58.0
70.0
70.5
Financial account balance
108.0
-0.6
46.2
236.5
177.0
189.0
44.4
Direct investment
22.5
11.7
18.8
187.6
78.6
59.6
-61.1
Abroad
-443.6
-682.1
-711.2
-643.0
-615.0
In the reporting economy
466.1
693.8
1097.0
1517.1
789.9
702.6
553.9
Portfolio investment
203.4
-197.6
148.7
80.5
47.4
202.8
180.4
Assets
-739.3
-674.2
Liabilities excluding LCFAR
942.7
849.1
1510.8
1382.0
1244.7
877.0
1456.7
Liabilities including LCFAR
963.7
928.8
1606.3
1511.0
1311.5
1049.8
1687.1
LCFAR in Portfolio
-21.0
-79.7
-95.4
-129.1
-66.7
-172.8
-230.4
Financial derivatives
-6.6
-13.0
14.7
-14.8
7.6
-8.8
-7.4
148.2
186.9
195.4
228.5
234.6
261.7
Liabilities
-154.7
-199.8
-180.7
-243.3
-227.0
-211.6
-269.1
Other investment
-65.0
210.2
-122.3
36.4
79.6
-30.3
-38.8
-345.5
-537.8
-717.1
-631.5
1258.0
555.7
415.5
1315.2
796.7
601.1
1001.3
1296.7
506.4
458.3
1306.5
849.0
664.6
1244.8
LCFAR in Other Investment
-38.7
49.4
-42.8
8.7
-52.3
-63.5
-243.5
Reserves plus LCFAR
-46.3
-12.0
-13.7
-53.1
-36.1
-34.3
-28.8
Reserves
-106.0
-42.3
-151.9
-173.5
-155.1
-270.6
-502.7
LCFAR
59.8
30.3
138.3
120.4
119.0
236.2
473.9
Net errors and omissions
-126.8
74.7
72.7
-124.2
-43.2
-76.2
7.9
Source: IMF, Balance of Payments Statistics Yearbook 2004.

9. Balance of Payments 2. Important Sections of the Balance of Payments
(3) The Official Reserve Account
(4) Net Errors and Omissions

10. Balance of Payments 3. Equilibrium of BOP
Table 6-4: The Balance of Payments of China, 2004 (USD )
Type of Transaction
Balance
Current Account
Goods and Services
Goods
Services
Income and Profit
Current Transfers
Capital and Finance Account
Capital Account
-6935
Financial Account
Direct Investments
Chinese Direct Investments Abroad
Foreign Direct Investments in China
Securities
Other Investments
Reserve Assets
Net Error and Omission
Source: The Statistics Be of P.R.C (2005), The Statistics Yearbook of China: 2004.
Notes:
1. Trade data in the table are from customs statistics.
2. Credit data on direct investment in the table are from statistics and from "Approved Leasing of Land" in indirect reporting, both collected by the Ministry of Commerce, and debit data are from indirect reporting.
3. Other data in the table are from indirect reporting.

11. The Balance of Payments and Economic Crises
The Third World Debt Crisis

12. The Balance of Payments and Economic Crises
The Mexican Peso Crisis

13. The Balance of Payments and Economic Crises
The Asian Financial Crisis

14. The Balance of Payments and Economic Crises
The Asian Financial Crisis

15. The Balance of Payments and Economic Crises
The Asian Financial Crisis

16. Thank you!