The Balance of Payments

1. The Balance of Payments

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

3. Categories credits: capital inflows (+) debits: capital outflows (-)

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

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

19. 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.

21. 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.

23. 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.

25. 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.

27. 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.

30. Everything balances out 1 + 0.8 + 0.04 + 1 + 0.04 = 0.04 + 0.8 + 1 + 0.04 +1