| Home » Economics Homework Help » Macroeconomics Help » Balance of Payments |
Balance of Payments
Briefly speaking balance of payment is a summary of all economic transactions between the residents (households, firms and the government agencies) of a country and the rest of the world, during a period of time, usually one year. The economic transactions between a country and the rest of the world are categorized under: (a) current account transactions, and (b) capital account transactions.
The current account transactions include current receipt and payments on account of (i) exports and imports of goods and services, (ii) tourism services, (iii) transportation and insurance services, (iii) foreign investment incomes and payments (iv) private transfer payments, including inter-personal inter-bank payments, and (v) inter-government transfer payments (gifts, donations pensions, etc,). The current account transactions may have a surplus or a deficit.)
The capital account transactions include (i) the balance of trade, (II) commercial borrowings (iii) external assistance, (iv) IMF borrowings, (v) non-residents deposits, (vi) foreign direct and portfolio investment and (vii) debt servicing. The capital account may show a surplus or deficit depending on whether capital inflows are greater or smaller than capital outflows. The capital accounts balance is reflected by the change in gold and foreign exchange reserves.
Derivation of the BOP function
To derive the BOP function, let us make some simplifying assumptions. One we assume a small country case in which the imbalance in balance of trade (BOT) does not affect the BOP of other countries. TWO exchange rate remains fixed and therefore the relative prices between the nations remains undisturbed. Three, relative prices between any two nations remain constant.
The BOP equilibrium may thus be expressed as
BOP = X – M – K = 0, (if X > M)
BOP = X – M + K = 0, (if X < M)
Where X = exports; M = imports; and K = net capital transfers including government transfers,
The variables X and M in Eq. are defined in the functional form as given below.
X = X
M = M + m Y
Capital outflows and inflows
The net capital outflow is an inverse function of the domestic interest rate. With this kind of capital transfers and the interest rate, the net capital outflow (K0) may be written in a functional form as
Ko = K (i)
Where, K < 0 and ∆K0 / ∆I > 0
We can now specify the BOP function in terms of X, M and K functions as given below
BOP = X – (M + mY) – K (i)
It may be noticed that, given the exports and exchange rate, the BOP becomes a function of y and I (percent).
Services:- Balance of Payments Homework | Balance of Payments Homework Help | Balance of Payments Homework Help Services | Live Balance of Payments Homework Help | Balance of Payments Homework Tutors | Online Balance of Payments Homework Help | Balance of Payments Tutors | Online Balance of Payments Tutors | Balance of Payments Homework Services | Balance of Payments
The current account transactions include current receipt and payments on account of (i) exports and imports of goods and services, (ii) tourism services, (iii) transportation and insurance services, (iii) foreign investment incomes and payments (iv) private transfer payments, including inter-personal inter-bank payments, and (v) inter-government transfer payments (gifts, donations pensions, etc,). The current account transactions may have a surplus or a deficit.)
The capital account transactions include (i) the balance of trade, (II) commercial borrowings (iii) external assistance, (iv) IMF borrowings, (v) non-residents deposits, (vi) foreign direct and portfolio investment and (vii) debt servicing. The capital account may show a surplus or deficit depending on whether capital inflows are greater or smaller than capital outflows. The capital accounts balance is reflected by the change in gold and foreign exchange reserves.
Derivation of the BOP function
To derive the BOP function, let us make some simplifying assumptions. One we assume a small country case in which the imbalance in balance of trade (BOT) does not affect the BOP of other countries. TWO exchange rate remains fixed and therefore the relative prices between the nations remains undisturbed. Three, relative prices between any two nations remain constant.
The BOP equilibrium may thus be expressed as
BOP = X – M – K = 0, (if X > M)
BOP = X – M + K = 0, (if X < M)
Where X = exports; M = imports; and K = net capital transfers including government transfers,
The variables X and M in Eq. are defined in the functional form as given below.
X = X
M = M + m Y
Capital outflows and inflows
The net capital outflow is an inverse function of the domestic interest rate. With this kind of capital transfers and the interest rate, the net capital outflow (K0) may be written in a functional form as
Ko = K (i)
Where, K < 0 and ∆K0 / ∆I > 0
We can now specify the BOP function in terms of X, M and K functions as given below
BOP = X – (M + mY) – K (i)
It may be noticed that, given the exports and exchange rate, the BOP becomes a function of y and I (percent).
Services:- Balance of Payments Homework | Balance of Payments Homework Help | Balance of Payments Homework Help Services | Live Balance of Payments Homework Help | Balance of Payments Homework Tutors | Online Balance of Payments Homework Help | Balance of Payments Tutors | Online Balance of Payments Tutors | Balance of Payments Homework Services | Balance of Payments
Submit Your Query ???
Assignment Help
Microeconomics Help
Macroeconomics Help
International Economics
Business Economics Help
Topics
Economic Growth
Controlling Business Cycles
Fiscal Measures
Government Economic Role
Economic Growth Factors
Monetary Measures
Global Recession
Growth Accounting
Global Economy
Economy Growth
Business Cycle
Inflation Theory
Unemployment Cost
Inflation Effect
Inflation And Unemployment
Inflation Control
Measuring Inflation
Price Wage Control
Unemployment
Inflation Types
Inflation
Employment Effect
Fiscal Monetary Changes
Product Money Markets
IS Curve
Money Market Equilibrium
Radicalism
Balance Of Payments
Tax Rate Increase
Modern Monetarism
Product Market Equilibrium
Supply Side Economics
Payments Assessment
Exchange Rate Change
Foreign Exchange Market
Macroeconomic Aspects
Payments Balance Accounts
Payments Balance Purpose
Fixed Exchange Rate
Foreign Exchange Nature
Purchasing Power
Budgetary Deficits
Macroeconomic Analysis
Economic Production
Economic Models
Macroeconomics Importance
Macroeconomics
Macroeconomic Issues
Model Building
Methodology
National Income Measures
National Income Types
Classical Macroeconomics
Economic Issue
Economics Subject Matter
Macroeconomics Use
Credit Multiplier
Fiscal Instruments
Monetary Policy
Fiscal Policy Types
Macroeconomic Policies
Fiscal Policy
Monetary Policy Scope
Macroeconomic Policy Scope
Macro Policies Objectives
Money Transaction Demand
Money Market Changes
Money Quantity Theory
Interest Theory
Money Multiplier
Money Determinants
Money Functions
Money Keynesian Theory
Money Market Analysis
Money Kinds
Money Supply Measures
Money Significance
Money Supply Sources
Money Supply Theory
Money Theories
Consumption Demand Function
Employment Real Output
Exports Imports Demand
Says Law
Income Determination
Simple Economic Model
Investment Multiplier
Product Market Analysis
Static Dynamic Multiplier
Fiscal Multipliers
Labour Market
Factors Affecting Consumption
Income And Investment
Investment
Consumption Keynesian Theory
Investment Decision Methods
Income Hypothesis
Relative Income Hypothesis
Capital Accumulation
Homework Help, Online Tutor, Online Tutoring Available For All Subjects. Some useful topics are given below :