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The Balance of Payments Definition Accounting system measuring all economic transactions between the residents of one country and the rest of the world.

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Presentation on theme: "The Balance of Payments Definition Accounting system measuring all economic transactions between the residents of one country and the rest of the world."— Presentation transcript:

2 The Balance of Payments

3 Definition Accounting system measuring all economic transactions between the residents of one country and the rest of the world

4 Categories credits: capital inflows (+) debits: capital outflows (-)

17 Note By now, the BOP should be …balanced, that is, Current Account + Capital Account + Official Reserve Balance = 0

18 What if still unbalanced? The Fudge Factor Use an old accounting trick:

20 Exemplification 1. Canada loans C$ 1 m to Haiti for 10 years by creating a C$ 1 m deposit with a Toronto Bank. 2. A Canadian firm sells $1 m worth of wheat to Haiti. The wheat is paid from the deposit created from the loan. 3. A Canadian receives C$ 0.04 m in interest from the German bonds she owns. The C$0.04 m is deposited in a German bank. 4. A Canadian tourist travels to Germany and spends C$0.04 m 5. Canada gives C$0.8 m worth of humanitarian aid to Somalia.

22 Exemplification 1. Canada loans C$ 1 m to Haiti for 10 years by creating a C$ 1 m deposit with a Toronto Bank. 2. A Canadian firm sells $1 m worth of wheat to Haiti. The wheat is paid from the deposit created from the loan. 3. A Canadian receives C$ 0.04 m in interest from the German bonds she owns. The C$0.04 m is deposited in a German bank. 4. A Canadian tourist travels to Germany and spends C$0.04 m 5. Canada gives C$0.8 m worth of humanitarian aid to Somalia.

24 Exemplification 1. Canada loans C$ 1 m to Haiti for 10 years by creating a C$ 1 m deposit with a Toronto Bank. 2. A Canadian firm sells $1 m worth of wheat to Haiti. The wheat is paid from the deposit created from the loan. 3. A Canadian receives C$ 0.04 m in interest from the German bonds she owns. The C$0.04 m is deposited in a German bank. 4. A Canadian tourist travels to Germany and spends C$0.04 m 5. Canada gives C$0.8 m worth of humanitarian aid to Somalia.

26 Exemplification 1. Canada loans C$ 1 m to Haiti for 10 years by creating a C$ 1 m deposit with a Toronto Bank. 2. A Canadian firm sells $1 m worth of wheat to Haiti. The wheat is paid from the deposit created from the loan. 3. A Canadian receives C$ 0.04 m in interest from the German bonds she owns. The C$0.04 m is deposited in a German bank. 4. A Canadian tourist travels to Germany and spends C$0.04 m 5. Canada gives C$0.8 m worth of humanitarian aid to Somalia.

28 Exemplification 1. Canada loans C$ 1 m to Haiti for 10 years by creating a C$ 1 m deposit with a Toronto Bank. 2. A Canadian firm sells $1 m worth of wheat to Haiti. The wheat is paid from the deposit created from the loan. 3. A Canadian receives C$ 0.04 m in interest from the German bonds she owns. The C$0.04 m is deposited in a German bank. 4. A Canadian tourist travels to Germany and spends C$0.04 m 5. Canada gives C$0.8 m worth of humanitarian aid to Somalia.