Chapter 5

Balance of Payments
Introduction

 In Parts One and Two, we dealt with

international trade theory and policy.
 We now begin our examination of the monetary
aspects of international economics, or
international finance and begin our discussion
by examining the balance of payments.
Learning Goals

1. Understand what the BoP is and what it

measures
2. Understand the BoP categories and the
international flow of goods, services and
capital
3. Understand the relationship between the
current account and other macroeconomic
indicators of the economy
Contents

1. Definition, book- keeping principles and the

accounts of BoP
2. Concepts of surplus and deficits in the BoP
3. Current account and other macroeconomic
indicators
4. Some basic methods to adjust deficit of the
current account
Definition

The BoP is a summary statement in which, in

principle, all the transactions of the residents of
a nation with the residents of all other nations
are recorded during a particular period of time,
usually a calendar year.

• What is an international transaction?

• Who is a resident of a nation?

• Why the BoP is not a full statement but summary

statement?

• What are the main purpose of the BoP?

What is an international transaction?

 Refers to the exchange of a commodity, service, or

asset (for which payment is usually required)
between the residents of one nation and residents of
other nations

 Types of the international transactions

◦ Exchange goods/services for goods/services

◦ Exchange goods/services for assets

◦ Exchange assets for assets

What is an international transaction?

 Gift for relatives oversea can be included in a

nation’s BoP. True or False?
 Gift and certain other transfers (for which no payment
is required) are also included in a nation’s BoP.
➔ the last type of the international transaction is the unilateral
transfers
Who are residents of Vietnam?

 Vietnamese diplomats and military personnel?

 Vietnamese tourists?

 Vietnamse workers?

 Vietnamese corporation?
 Foreign branches/subsidiaries of Vietnamese
corporation?

 International institutions located in Vietnam:

IMF, WB, WTO?
Who are residents of Vietnam?
Residents of the
 Diplomats? nation in which
they hold
 Military personnel? citizenship. NOT
depend on their
 Tourists? domicile
 Workers?

 A corporation?

 Foreign branches/subsidiaries of a corporation?

 International institutions: IMF, WB, WTO?

Who are residents of Vietnam?

 Diplomats? Depend on the

time duration in
 Military personnel? the foreign
country
 Tourists?

 Workers? A worker is considered a resident of a

country when he has stayed or intends to
 A corporation? stay in that country for one year or more.
 Foreign branches/subsidiaries of a corporation?

 International institutions: IMF, WB, WTO?

Who are residents of Vietnam?

 Diplomats?
A resident of the
 Military personnel? nation in which
it is
 Tourists? incorporated

 Workers?

 A corporation?

 Foreign branches/subsidiaries of a corporation?

 International institutions: IMF, WB, WTO?

Who are residents of Vietnam?

 Diplomats?
NOT Residents
 Military personnel? of the nation in
which they are
 Tourists? located
 Workers?

 A corporation?

 Foreign branches/subsidiaries of a corporation?

 International institutions: IMF, WB, WTO?

Why the BoP is summary statement?

 Because there are many international economic

transactions of the resident of a nation with the rest
of the world
➔ They cannot appear individually in the BoP
➔ BoP has some main categories
The main purpose of the BoP

 Inform the government of the international

position of the nation to help it in its formulation
of monetary, fiscal, and trade policies.

 Provide the data of important trade partners for

governments to make policy decisions.

 Provide the data for banks, firms, and

individuals directly or indirectly involved in
international trade and finance.
BoP Accounting Principles

International transactions are

classified as credits or debits

Credit Debit
transactions transactions

are entered
involve the are entered
involve the with a
receipt of with a
making of negative
payments positive sign
payments to sign (-) in
from (+) in the
foreigners the nation's
foreigners nation's BoP
BoP
Credits and Debits
Flows of Goods,
services or assets

BoP1 BoP2

Flows of
capital
BoP Accounting Principles

 Principles: double-entry bookkeeping

➔each international transaction is recorded
twice, once as a credit and once as a
debit of an equal amount. WHY?
➔ every transaction has two sides.
 We sell something and we receive payment for it. We
buy something and we have to pay for it.
◦ A debit entry  a payment to foreigners
◦ A credit entry  a receipt from foreigners
The Accounts of the BOP

the Current Account (CA)

the Capital and Financial

Account (KA)
BoP
structure
the Official Reserves
account (RA)

the Net Errors and

Omissions account (EO)
Current Account (CA)
The record of commodity and service
transactions and unilateral current transfers

Main categories (IMF - BPM6)

Goods and Unilateral

Income
services transfers
 Current Account (CA)

The record of commodity and service

transactions and unilateral current transfers

commodity
Main categories (IMF - BPM6)
transactions

Goods and Unilateral

Income
services transfers
 Current Account (CA)
travel, tourism,
royalties,
transportation
costs, insurance
premiums

Main categories (IMF - BPM6)

Goods and Unilateral

Income
services transfers
Current Account
Compensation of
(CA)
employees
Investment income

Main categories (IMF - BPM6)

Goods and Unilateral

Income
services transfers
Current Account (CA)
Government transfers/ government
grants (in cash or in kind);
Pensions, private remittances;
Other current transfer

Main categories (IMF - BPM6)

Goods and Unilateral

Income
services transfers
Accounting of Current Account

Credits

Exports of Income Unilateral current

goods and transfers into the
services receipts nation

Income receipts on foreign aid,

Compensation gifts,
the nation-owned
of employees retirement
assets abroad
pensions,
workers’
remittances
Direct Other The nation into the
investment private government nation
receipts receipts receipts
Accounting of Current Account

Debits

Imports of Unilateral current

Income
goods and transfers out of
payments
services the nation

Income payments
Compensation
on foreign-owned
of employees
assets in the nation

Direct Other private The nation

investment government
payments payments payments
CA - Notes
Exports Imports Visible Trade Balance
of of or Net Export
goods goods

Exports Imports Net income

of of (income receives - income payments)
Services Services

Invisible Trade Balance

Trade Balance

> 0 ➔ Surplus < 0 ➔ Deficit

in Trade in Trade
Balance Balance
Current Account - Notes
 The current account is commonly used to
assess the balance of trade, which is simply the
difference between merchandise exports and
merchandise imports.
 CA balance is often reported as the "trade
balance using a broad measure of international
trade."
◦ Because unilateral transfers are relatively small and
because investment income can be interpreted as
payments for a service, it is common to say that a
CA deficit means that imports of goods and
services exceeds exports of goods and services.
Capital/Financial Account (KA)

The record of financial asset transactions and public

and private investment and lending
What do assets represent?

• All forms of ownership claims in things that have

value.
• Examples: bonds, treasury bills, stocks, mutual
funds, bank deposits, real estate, currency and
other types of financial instruments.

What are types of assets?

• IOUs
• Ownership shares in a business or property
Capital/Financial Account (KA)

IOUs Ownership shares in

a business or
property
• Bonds, savings accounts, • common stock, real estate
treasury bills, etc., • give the purchaser an
• the purchaser of the asset ownership share in a
agrees to give money to corporation and entitles
the seller of the asset in the owner to a stream of
return for an interest dividend payments in the
payment plus the return of future if the company is
the principal at some time profitable.
in the future. • Real estate purchases
• These asset purchases entitle the owner to the
represent borrowing and future stream of rental
lending payments by the tenants
in the building.
Capital/Financial l Account (KA)

Homework: distinguish IOUs and assets

consisting of ownership shares in a business or
property
 Capital/Financial Account (KA)
Capital transfer

Capital
Account Acquisition/disposal of non-
produced, non-financial assets
Main
categories
Abroad
(IMF - Direct investment
BPM6) In economy

Portfolio investment Assets

Financial
Account Liabilities
Other investment
Assets
Reserve assets
Liabilities
The Capital Account

Capital transfer (shifts in assets,

not current income)

The transfer of
goods and The transfer of
financial assets Transfer of funds received
Debt by migrants to the sale or
ownership on
forgiveness leaving or acquisition of
fixed assets
entering a fixed assets
country
The Capital Account

Acquisition/disposal of non-
produced, non-financial assets

Patents, copyrights, Gift and inheritance

and royalties taxes

You will NOT consume them; they will last over one year
Other Investment Assets/Liabilities
Short-term trade
credits

Accounts Long-term trade

payable credits

Cross-border
Other accounts loans from all
receivable types of financial
institutions

Currency
Bank deposits deposits
Accounting of KA
Capital Inflows Capital Outflows
Private
Finance
Credits Debits Initiative

1. FDI, PFI (in economy) 1. PDI, PFI (abroad) Private

Debt
2. Increases in foreign 2. Increases in a nation’s
assets in a nation Investor
assets abroad
3. Decreases in a nation’s 3. Decreases in foreign
assets abroad assets in a nation
4. Borrowing 4. Lending
5. Increases in the 5. Increases in the
nation’s liabilities nation’s claims
6. Decreases in the 6. Decreases in the
nation’s claims nation’s liabilities

KA surplus KA deficits
KA – Implication

Capital outflows > Capital outflows

Capital Inflows < Capital
Inflows
• KA deficit • KA surplus
• the country is a net • the country is a net
lender debtor
The Net Errors and Omissions
account (EO)
 Theoretically, current account and capital account
should add up to zero.
 But in reality, there is a discrepancy in BoP. Why?
◦ Because recordkeeping for the BoP is incomplete,
especially on the financial side of international
transactions
◦ Because data associated with a given transaction
may come from different sources that differ in
coverage, accuracy, and timing.
◦ Because of errors, time lags, and so on.
 The EO is the sum of CA+KA with the sign reversed
Some examples of the double-entry
bookkeeping principles – The U.S. BoP

1. Mr. A pays $65,000 in cash to Mr. B of U.K. for a newXJ8

convertible. Mr. B deposits the dollars into its U.S. bank
account
2. Dell buys $15,000,000 worth of hard-disk drives from a
South Korean company and sells $25,000,000 worth of
computers to another Korean company. Dell now has $10
million that it lends to Daewoo, which is struggling to build
cars
3. Mr. A buy $10,000 worth of shares of Mushy Peas-R-Us by
borrowing money from a British broker.
4. Shell, a mining company in the U.S. exports US$2.0m worth
of bauxite to Jimpex a company in the Jamaica and Jimpex
pays for the bauxite by depositing US$2.0mn to Shell’s bank
account.
 Some examples of the double-entry
bookkeeping principles – The U.S. BoP

5. A U.S. citizen buys a $1000 typewriter from an Italian

company, and the Italian company deposits the $1000 in its
account at Citibank in New York.
6. A U.S. citizen pays $200 for dinner at a French restaurantin
France by charging his Visa credit card.
7. A U.S. citizen buys a $95 newly issued share of stock in the
United Kingdom oil giant British Petroleum (BP) by using a
check drawn on his stockbroker money market account. BP
deposits the $95 in its own U.S. bank account at Second
Bank of Chicago.
8. A U.S. bank forgives $5000 in debt owed to it by the
government of Pakistan.
Some examples of the double-entry
bookkeeping principles – The U.S. BoP

 Example 1: Mr. A pays $65,000 in cash to Mr. B of

U.K. for a new XJ8 convertible. Mr. B deposits the
dollars into its U.S. bank account.
◦ CA: -$65,000 [Imports of goods]
◦ KA: + $65,000 [Mr. B has increased holdings of U.S.
currency - Increases in foreign assets in a nation]
Some examples of the double-entry
bookkeeping principles – The U.S. BoP

 Example 2: Dell buys $15,000,000 worth of hard-

disk drives from a South Korean company and
sells $25,000,000 worth of computers to another
Korean company. Dell now has $10 million that it
lends to Daewoo, which is struggling to build cars.
◦ CA: + $25,000,000 [Exports of goods]
◦ CA: - $15,000,000 [Imports of goods]
◦ KA: - $10,000,000 [Increased loans to foreigners -
Increases in the U.S assets abroad]
Some examples of the double-entry
bookkeeping principles – The U.S. BoP

 Example 3: Mr. A buy $10,000 worth of shares of

Mushy Peas-R-Us by borrowing money from a
British broker.
◦ KA: - $10,000 [U.S. Purchase of Foreign Asset -
Increases in U.S assets abroad ]
◦ KA: + $10,000 [Foreign loan to U.S. resident - Capital
Inflow]
Some examples of the double-entry
bookkeeping principles – American BoP

 Example 4: Shell, a mining company in the U.S.

exports US$2.0m worth of bauxite to Jimpex a
company in the Jamaica and Jimpex pays for the
bauxite by depositing US$2.0mn to Shell’s bank
account.
◦ CA: + $2.0m [Exports of goods]
◦ KA: - $2.0m [increase in the U.S claims on
foreigners]
U.S. BoP in 2009 (Millions of dollars)
(credits +, debits -) http://www.bea.gov/
Line (Credits +; debits -) 2009
Current account
1 Exports of goods and services and income receipts 2159000
2 Exports of goods and services 1570797
3 Goods, balance of payments basic 1068499
4 Services 502298
12 Income receipts 588203
13 Income receipts on U.S.-owned assets abroad 585256
17 Compensation of employees 2947
18 Imports of goods and services and income payments -2412489
19 Imports of goods and services -1945705
20 Goods, balance of payments basis -1575443
21 Services -370262
29 Income payments -466783
Income payments on foreign-owned assets in the United
30 States -456027
34 Compensation of employees -10757
35 Unilateral current transfers, net -124943
U.S. BoP in 2009 (Millions of dollars)
(credits +, debits -) http://www.bea.gov/
Line (Credits +; debits -) 2009
Capital account
39 Capital account transactions, net -140
Financial account
U.S.-owned assets abroad, excluding financial derivatives
40 (increase/financial outflow (-)) -140465
41 U.S. official reserve assets -52256
46 U.S. government assets, other than official reserve assets 541342
50 U.S. private assets -629552
Foreign-owned assets in the United States, excluding
55 financial derivatives (increase/financial inflow (+)) 305736
56 Foreign official assets in the United States 450030
63 Other foreign assets in the United States -144294
70 Financial derivatives, net 50804
Statistical discrepancy (sum of above items with sign
71 reversed) 162497
U.S. BoP in 2009 (Millions of dollars)
(credits +, debits -) http://www.bea.gov/

Line (Credits +; debits -) 2009

Memoranda:

72 Balance on goods (lines 3 and 20) - 506944

73 Balance on services (lines 4 and 21) 132036

74 Balance on goods and services (lines 2 and 19) - 374908

75 Balance on income (lines 12 and 29) 121419

76 Unilateral current transfers, net (line 35) - 124943

Balance on current account (lines 1, 18, and 35 or
77 lines 74, 75, and 76) - 378432
Balance on financial account 216075
Balance on financial account and Capital account 215935
 Comments

(Credits +; debits -) 2009

Memoranda: the US imported more

physical goods than
Balance on goods - 506944 it exported.

Balance on services 132036

the US exports more
Balance on goods and services - 374908 services than it
imports from the
Balance on income 121419 rest of the world
Unilateral current transfers, net - 124943

Balance on current account - 378432

Balance on financial account 216075 What were the U.S
Balance on financial account comparative advantages
and Capital account and disadvantages?
215935
 Comments

(Credits +; debits -) 2009 US residents earned

more on their
Memoranda: investments abroad than
foreigners earned on
Balance on goods - 506944 their investments in the
US
Balance on services 132036
more of the government
Balance on goods and services - 374908 and private transfers
were made to
Balance on income 121419 foreigners than were
Unilateral current transfers, net - 124943 received by
U.S residents
Balance on current account - 378432
Balance on financial account 216075 the US recorded a
Balance on financial account current account
and Capital account 215935 deficit of $ 378432
million
 Comments •foreigners are
buying more US
assets than US
(Credits +; debits -) 2009 residents are buying
of foreign assets
Memoranda:
•the US is borrowing
Balance on goods - 506944 money from the rest
Balance on services 132036 of the world

Balance on goods and services - 374908

Balance on income 121419

Unilateral current transfers, net - 124943

Balance on current account - 378432

Balance on financial account 216075
Balance on financial account
and Capital account 215935
 Comments

(Credits +; debits -) 2009

•recorded credit
Memoranda:
entries on the BoP
Balance on goods - 506944 exceeded recorded
debit entries
Balance on services 132036
•an additional $16
Balance on goods and services - 374908 billion debit entry is
needed to make the
Balance on income 121419
accounts balance
Unilateral current transfers, net - 124943

Balance on current account - 378432

Balance on financial account 216075
Statistical discrepancy (sum of
above items with sign
reversed) 162497
Chapter 5
Balance of Payments
(cont.)
Official Reserves Account
 Official Reserve Account (ORA) measures the
change in a country’s official reverse assets and the
change in foreign official assets in that country.
◦ The Official Reserve Settlement Balance

 Official reserves assets include

◦ Gold at international Standard

◦ Foreign currencies

◦ Special Drawing Rights - SDRs

◦ Reserve positions in the IMF

 Why do central banks need to
intervene in foreign market?
CA + KA (excluding official reverse assets) + EO < 0

The demand for the foreign currency excesses the

supply of the foreign currency

With a freely flexible exchange rate system, the

domestic currency would depreciate

Under a managed float, the nation would have to satisfy

the excess demand for the foreign currency out of its
official foreign reverses ➔ intervention by the central
bank in to FX

The nation’s official reverse would fall

 Why do central banks need to
intervene into foreign market?
CA + KA (excluding OR assets) + SD > 0

The supply of the foreign currency excesses the

demand for the foreign currency

With a freely flexible exchange rate system, the

domestic currency would appreciate

Under a managed float, the nation would have to

satisfy the excess supply of the foreign currency
by increasing official foreign reverses ➔
intervention by the central bank in to FX

The nation’s official reverse would rise

Official Reserves Account

Increases in FX reserves held by a central bank count

as debits to the RA. Why?
• To balance the nation’s BoP
• FX reserves increases when CA + KA (excluding official
reverse assets) + SD > 0

Similarly, decreases in FX reserves held by a central

bank count as credits to the RA

Function
• Reflects surplus/deficit of Current account and Capital account
• Reports the net change in FX reserves.
Table 5. U.S. Official Reserve Assets and
Foreign Official Assets in the United States
[Millions of dollars]

(Credits +; decrease in U.S. assets or

increase in foreign assets.
Line 2009/p/
Debits -; increase in U.S. assets or decrease
in foreign assets.)
U.S. official reserve assets, net (table 1,
A1 -52256
line 41)
2 Gold (table 1, line 42) 0

3 Special drawing rights (table 1, line 43) -48230

Reserve position in the International
4 -3357
Monetary Fund (table 1, line 44)
5 Foreign currencies (table 1, line 45) -669
Table 5. U.S. Official Reserve Assets and
Foreign Official Assets in the United States
[Millions of dollars]
(Credits +; decrease in U.S. assets or increase in foreign
assets.
Line Debits -; increase in U.S. assets or decrease in foreign assets.) 2009/p/
B1 Foreign official assets in the United States, net (table 1, line 56) 447575

By instrument:
2 U.S. Treasury securities (table 1, line 58) 490125
6 Other U.S. government securities (table 1, line 59) -39017
7 Other U.S. government liabilities (table 1, line 60) 58461
U.S. liabilities reported by U.S. banks and securities brokers
8 (table 1, line 61) -71588
9 Liabilities for own accounts -34599
13 Liabilities for customers' accounts -36989
16 Other foreign official assets (table 1, line 62) 9594
Table 5. U.S. Official Reserve Assets and
Foreign Official Assets in the United States
[Millions of dollars]

(Credits +; decrease in U.S. assets or increase in

foreign assets.
Debits -; increase in U.S. assets or decrease in
Line foreign assets.) 2009/p/

By area:

17 Europe 9132

18 Canada -3980

19 Latin America and Caribbean 5771

20 Asia 377731

21 Africa 13519

22 Other 45402
Deficit and surplus in the BoP
 CA and KA take place for business or profit motives
(except for unilateral transfers) and independently to BoP
consideration.
➔ All transactions in the CA and KA are called
autonomous transactions or “the items above the
line”
 On the other hand, transactions in official reserve assets
are called accommodating transactions (or “items
below the line”) because they result from and are
needed to balance international transactions
 The accommodating or below the line items form the
official reserve account, and the balance on the official
reserve account is called the official settlement balance
Deficit and surplus in the BoP
If the total of the debits > the total of the credits in the CA and KA

The net debit balance measures the deficit in the nation’s BoP

This deficit must then be settled with an equal net credit in the ORA

A deficit in the BoP can be measured either by the excess of debits

over credits in the CA and KA or by the excess of credits over
debits in the ORA

On the other hand, a nation has a surplus in the BoP if its total
credit exceed its total debits in the CA and KA. The net credit
balance gives the size of surplus and is settled by an equal debit
balance in the OCA
CA and other macroeconomic
indicators of the economy

CA and Y

CA and S

CA and Sp, Sg
National Income Account and CA

 In the open economy, we have the National

Income Identity: Y = C + I + G + NX

◦ Y = GDP

◦ C = consumption

◦ G = government spending

◦ NX = net export of goods and services = X – M

(X = export; M = import)
National Income Account and CA

 If unilateral transfer + net income = 0

➔ NX = CA

 Y = C + I + G + CA

➔ CA is one factor contributing national income

➔CA↑↓ ➔ Y ↑↓
National Income Account and CA

 CA = X - M ➔ Y = C + I + G + X - M

➔ Domestic spending on goods and services

produced domestically =C+I+G–M

➔ Foreign spending on goods and services

produced domestically =X
Current account balance (cont’d)

 Y = C + I + G + CA ➔ CA = Y – (C + I + G) = Y – A
where A = domestic absorption
➔ A country with current account deficit is buying
more from foreigners than it sells to them
➔ It has to increase net foreign debts.
➔ CA = net foreign wealth
◦ CA > 0: the country is a net lender to the rest of
world
◦ CA < 0: the country is a net borrower from the rest
of world
Saving and Investment

 Let S = national saving = Y – C – G.

 Then, S = I + CA (In a closed economy S = I)
where I = domestic investment = capital stock
accumulation
Saving and Investment
 S>I
◦ A nation which produces more than it spends will save
more than it invests domestically ➔ a net capital outflow
➔ a capital account deficit.

 S<I
◦ A nation which produces less than it spends will invest
more than it saves domestically ➔ a net capital inflow ➔ a
capital account surplus

➔ An open economy can increase investment by borrowing

abroad.

 A healthy economy will tend to run a current account deficit.

Saving and Investment

 S = I + CA
➔ S - I = Net Foreign Investment (NFI) = CA
◦ If CA is in surplus, the nation must be a net
exporter of capital.
◦ If CA is a deficit, the nation is a major capital
importer.

➔ When I > S the excess must be acquired

through foreign trade
Saving
 S = SP + SG
where SP = Yd – C = Y – T – C
SG = T – G
SP = private saving; SG = government saving;
Yd = disposable income; T = net tax.
 Then SP = (C + I + G + CA) – T – C
= I + CA + (G - T)
where G – T = government budget deficit.
 So CA = SP – I – (G –T)
A large government budget deficit leads to a large current
account deficit.
Saving

CA = SP – I – (G – T)

CA < 0 CA > 0

The nation is not saving The nation is saving more

enough to finance (I) and the than needed to finance its (I)
budget deficit. and the budget deficit
Saving
CA = Sp - I - (G-T) CA < 0 results from

Decrease in Over domestic Large budget

private saving investment deficit

Examples:
✓ 1994 - 1995, Mexico: Sp ↓ + (G - T)↑ → CA ↓ ➔ devaluation of Peso
✓ 1997, East Asia: - Sp too high(30 – 35% GDP)
- I too high and ineffective (major in real estate and
security market)
- (G – T): some deficit, some surplus
➔ CA in deficit➔ financial crisis in East Asia
COPING WITH THE CURRENT ACCOUNT
DEFICIT

 CURRENCY DEPRECIATION
 PROTECTIONISM
 FOREIGN OWNERSHIP
 STIMULATE NATIONAL SAVING
COPING WITH THE CURRENT ACCOUNT
DEFICIT

 CURRENCY DEPRECIATION
◦ U.S. Experience: Does not improve the
trade deficit.
◦ Depreciations are ineffective because
 It takes time to affect trade.
 J-Curve Effect: States that a decline in
currency value will initially worsen the
deficit before improvement
THE J - CURVE

Net Trade
change Currency balance
in trade depreciation improves
balance

0 TIME

Trade balance
initially deteriorates
COPING WITH THE CURRENT
ACCOUNT DEFICIT

 PROTECTIONISM
◦ Trade Barriers used
 Tariffs
 Quotas
◦ Results:
 Most likely will reduce both X and M.

75
COPING WITH THE CURRENT
ACCOUNT DEFICIT

 FOREIGN OWNERSHIP
◦ One protectionist solution would place
limits on or eliminate foreign ownership
leading to capital inflows.

 STIMULATE NATIONAL SAVING

◦ change the tax regulations and rates.

76
Balance of Payment

 Any question?
 Any comment?
 Thank you!!!
Homework (by group)

 Collect the latest data of BoP of Vietnam

and give some comments

 Do the exercises in the next slides

 Homework (by group)
According to the data of table below (billions USD), calculate:
1. Visible trade balance
2. Current Account Balance
3. Capital Account Balance
4. The Official Settlement Balance
Exports of Goods + 80
Imports of Goods - 60
Exports of Services + 30
Imports of Services - 20
Net investment income - 10
Net unilateral transfer + 20
Capital Inflows + 20
Capital Outflows - 80
Official Reserves + 20
Homework (by group)
 Assume that, in a nation:
• the visible trade balance = -110 (mil. USD)
• CA = - 105 (mil. USD)
• the increase in Official Reserves = - 5
 Explain why the conclusions below right or wrong
1. The Official Settlement Balance = 5
2. The invisible trade balance and the net of unilateral
transfers > 0
3. Capital flowed into the nation
4. Saving > Investment in the nation