1. Balance of payments and Exchange Rates

2. Balance of payments & exchange rates The balance of payments account Example of UK balance of payments The balance of payments account Example of UK balance of payments

3. Balance of payments & exchange rates The balance of payments account The current account The balance of payments account The current account

4. UK balance of payments: 2001 (£ millions)

10. Current account balance as % of GDP in selected countries: 1970–2003

11. UK Current account balance as % of GDP in selected countries: 1970–2003

12. USA UK Current account balance as % of GDP in selected countries: 1970–2003

13. USA Japan UK Current account balance as % of GDP in selected countries: 1970–2003

14. Balance of payments & exchange rates The balance of payments account The capital account The balance of payments account The capital account

15. UK balance of payments: 2001 (£ millions)

16. Balance of payments & exchange rates The balance of payments account The financial account The balance of payments account The financial account

17. UK balance of payments: 2001 (£ millions)

21. Balance of payments & exchange rates The balance of payments account The overall balance of payments The balance of payments account The overall balance of payments

22. UK balance of payments: 2001 (£ millions)

24. Balance of payments & exchange rates Exchange rates

25. Sterling exchange rates: 1980–2003

29. Balance of payments & exchange rates Exchange rates Determination of the exchange rate Exchange rates Determination of the exchange rate

30. $ price of £ Q of £ Determination of the rate of exchange

31. $ price of £ D by USA Q of £ Determination of the rate of exchange

32. $ price of £ QSQS S by UK Q of £ Determination of the rate of exchange D by USA QDQD ba

33. QSQS QDQD d $ price of £ Determination of the rate of exchange S by UK Q of £ c D by USA

34. Balance of payments & exchange rates Exchange rates Changes in the exchange rate Exchange rates Changes in the exchange rate

35. Floating exchange rates: movement to a new equilibrium € / £ S1S1 D1D1 Q of £

36. € / £ S1S1 D1D1 S2S2 Q of £ Floating exchange rates: movement to a new equilibrium

37. € / £ S1S1 D1D1 S2S2 D2D2 Q of £ Floating exchange rates: movement to a new equilibrium

38. Balance of payments & exchange rates Exchange rates Speculation against exchange rate movements Exchange rates Speculation against exchange rate movements

39. O Exchange rate Quantity of £s S1S1 D1D1 er 1 Stabilising speculation

40. O Exchange rate Quantity of £s er 2 S2S2 D2D2 S1S1 D1D1 er 1 Stabilising speculation

41. O Exchange rate Quantity of £s S3S3 D3D3 er 3 er 2 S2S2 D2D2 S1S1 D1D1 er 1 Stabilising speculation

42. O Exchange rate Quantity of £s S1S1 D1D1 er 1 Destabilising speculation

43. O Exchange rate Quantity of £s S2S2 D2D2 er 2 S1S1 D1D1 er 1 Destabilising speculation

44. O Exchange rate Quantity of £s S2S2 D2D2 er 2 er 3 S3S3 D3D3 S1S1 D1D1 er 1 Destabilising speculation

45. Balance of payments & exchange rates Exchange rates Movements in the sterling exchange rate over time Exchange rates Movements in the sterling exchange rate over time

46. $ / £ exchange rate and £ exchange rate index: 1976-2003 $ / £

47. $ / £ exchange rate and £ exchange rate index: 1976-2003 $ / £

48. $ / £ exchange rate and £ exchange rate index: 1976-2003 $ / £ Index 1990=100

49. $ / £ exchange rate and £ exchange rate index: 1976-2003 $ / £ Index 1990=100

50. Balance of payments & exchange rates Exchange rates Movements in the dollar/euro exchange rate from 1999 to 2003 Exchange rates Movements in the dollar/euro exchange rate from 1999 to 2003

51. Fluctuations between the euro and the dollar

52. US interest rate

53. Fluctuations between the euro and the dollar US interest rate ECB interest rate

54. Fluctuations between the euro and the dollar $ / € US interest rate ECB interest rate $ / €