INTERNATIONAL FINANCE

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INTERNATIONAL FINANCE. International Business College Fang De-dong Ph.D Associate Professor Tel: 13688675513 E-mail: fangdedong@sohu.com. 00- 1. Chapter One International Economics Is Different. [teaching targets and demands] - PowerPoint PPT Presentation

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  • 00-*INTERNATIONAL FINANCEInternational Business College Fang De-dong Ph.D Associate Professor Tel: 13688675513 E-mail: fangdedong@sohu.com

  • Chapter OneInternational Economics Is Different [teaching targets and demands] To introduce the relative concepts of international finance, for instance, currency exchanges between different countries for trades and investments, by four typical events.

  • [Teaching key and difficult points] How to make students understand that different economics in different countries leads to creation of international finance.

  • [chapter outline ]Four Eventsthe Euro, Argentina( from darling to delinquent); Economics and the nation-state: different moneys, different fiscal policies, factor ability.

  • CHAPTER 2Payments Among Nations

  • [teaching targets and demands] Be sure to master the concepts such as balance of payments, current account balance, direct investments, portfolio investment, official settlement balance etc. and the methods to make and analyze a balance of payments presentation.

  • [Teaching key and difficult points]

    How to make and analyze a balance of payments presentation.

  • chapter outlineTwo sides to any international exchange;Putting the account together; The macroeconomic meaning of the current account balance; The macro meaning of the overall balance; The International investment position

  • Balance of Payment (BOP)What is a countrys balance of payment?A systematic account of all the exchanges of value between residents of that country and the rest of the world during a given time period

    Tow flows in any transactionThe Records Principle of BOP Statements: double-entry bookkeeping

  • Double Entry Bookkeeping the system of keeping accounts every payment appears twice in different accents once as a credit and once as a debit .bookkeeping recording business transactions account

  • CreditA credit item (+) is a flow for which the country is paid.DebitA debit item (-) is a flow for which the country must pay.

  • Paul .A .Samuelson16p300

  • (flow of fund) 20101 + - 3500 -350 -2000 1000 -100 4500 -2450 2050 end

  • CreditExports of goodsPurchases by foreigners in this countryForeigners investing in the countrys bonds

  • DebitImports of goodsPurchases by firms in this country from foreign countriesPurchases by investors in this country from foreigners

  • 1+ 2-

  • Six categories of flowsMerchandise trade flowsGoods and Services flowsIncome flowsUnilateral transfersPrivate capital flowsOfficial international reserve flows

    *

  • Six balancesMerchandise (goods) trade balance Goods and service balance (trade balance)Goods, service, and income balance Current balance (net foreign investment)Financial account balanceOverall balance (official settlement balance)*

  • Outline of balance of paymentCurrent account(CA)Financial account(FA)Official international reserveStatistical discrepancy (net value of errors and omissions)

  • Current account(CA)Merchandise (goods) trade balance Goods and service balance (trade balance)Goods, service, and income balanceGoods, service, income and unilateral balance

  • 00-*1goodsfree of boardFOB2services3income4current transfer

  • Financial account(FA)is a record of international exchange of assets and liabilities . Including direct investments and securityportfoliol investments .

  • direct investments: any flow of lending to, or purchases of ownership in a foreign enterprise that is largely owned by residents of the investing country. (IMF25%, US.10%)portfoliol investments: lending or purchases include international flows of securities, loans and bank deposits. The investor does not own a large share of the enterprise being invested in,but just investing as part of portfolio.

  • Official international reserveMoney-like assets that are held by government and that are generally recognized by government as fully acceptable for payments between them.

  • Foreigh exchange(Bonds, stocks and deposits)GoldSDRs(Special Drawing Rights)Deposit in IMF

  • Statistical discrepancy errors and omissionsIf the two sides of every transaction are correctly recorded, there would not be any stastitical discrepancy. The sum are not equal, means thant any items were missed or to say anything were undermeasured. Eg. Private capital flows. Underreport merchadise imports, income receipts and capital exports. (smuggling, Drug trafficking)

  • 00-*

  • How to make BOPCreditA credit item (+) is a flow for which the country is paid.Exports of goodsPurchases by foreigners in this countryForeigners investing in the countrys bonds

  • DebitA debit item (-) is a flow for which the country must pay.Imports of goodsPurchases by firms in this country from foreign countriesPurchases by investors in this country from foreigners

  • 1+ 2-

  • 00-*The macro meaning of current account balance1.Financing and international financial flows: Net foreign investment (If).- CA = If National saving (S) versus domestic investment (Id). S = Id + If, so that CA = S Id

  • 00-* gross domestic products GDPgross national products GNPGNP

  • 00-*CIGCSPTC+I+G=Y=C+ SP+TI= SP +T-GT-G=SgSI=S

  • 00-*XMY=C+I+G+X-MCA=X-MCIGdomestic absorptionEE=C+Id+GCA=Y-ACA>0CA
  • 00-*3.Domestic production (Y) versus national expenditure (E). Y = C + Id + G +(X M), E = C + Id + G, and CA = (X M) approximately, so that CA = Y E

  • 00-*The Overall BalanceB: the official settlements balance measures the sum of the current account balance plus the private capital account balanceKA. B = CA+KAAny imbalance in the official settlements balance must be financed through official reserves flows: OR B+OR =0

  • The international investment positionA statement of the stocks of a nations international assets and foreign liabilities at a point in timeFlow vs. stock (lender or borrower vs. creditor or debtor)

  • Analysis of BOP StatementsThe meanings of imbalance means the expenditure total amount exceed receipts or contrary circumstance in a countrys balance of payments . The former is BOP deficit The latter is BOP surplus . surplus favorable deficit unfavorable

  • 1. 2. 1. above the line 2. below the line

  • 00-*

  • 00-*Net Errors and Omissions

  • 00-*Trade Balance Current Account Balance

  • 00-*Overall BalanceIMF

  • 00-* + = 0 + =

  • 00-*Conceptions (summary)1. balance of payments: a set of account recording all flows of value between residents of a country and the rest of the world during a given period of time.2. capital inflow :an increase in a nation's assets obtained from other countries or a decrease in its liabilities to other countries.3. capital outflow: an increase in a nation's liabilities to foreign residents or a decrease in assets previously obtained from other countries.

  • 00-*4. merchandise trade balance: net credits minus net debits on merchandise.5. goods and services balance: net exports of goods and services.6. goods, services, and income balance: net income flows and net exports of goods and services.7. current account balance: net credits minus debits on the flows of goods, services, income, and unilateral transfers.

  • 00-*8. capital account balance: net credits minus debits involving changes in private national residents' foreign financial assets and liabilities. (pg.16)9. official settlements balance: the sum of the current account balance plus the private capital account balance. (an imbalance in the official balance must be paid for through official reverses transaction)10 official international reservesmoney like assets such as gold that are generally recognized as official assets

  • 00-*11 direct investments any flow of lending to, or purchases of ownership in, a foreign enterprise that is largely owned by residents of the investing country. (IMF25%, U.S.10%)Portfolio investment: lending or purchases include international flows of securities, loans and bank deposits. The investor does not own a large share of the enterprise being invested in,but just investing as part of a diversified portfolio.

  • 12 net foreign investment: the change in a nation's foreign assets minus foreign liabilities.13 international investment position: the net accumulation of foreign assets minus foreign liabilities.

  • 14 Capital flight: The secret sending of wealth to foreign countries, away from the supervision of ones home government.

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