Macroeconomics
(14) Value of fnancial assets owned by the country’s citizens abroad
−450
(15) Financial capital transfers = (13) − (14)
50
(16) Value of non-fnancial assets owned by foreigners in the country
3,000
(17) Value of non-fnancial assets owned by the country’s citizens abroad
−3,400
(18) Non-fnancial capital transfers = (16) − (17)
−400
(19) Balance on the CFA = (15) + (18)
−350
(20) Balance of payments = (12) + (19)
−150
ButhowcometheBOPisnotzerointhiscase?Because,inpractice,theBOPdoesnotalwaysbalance. In table 3 for example, there is a BOP defcit of $150 billion. In other cases, the BOP might have a surplus (BOP > 0). These imbalances occur because, in real life, millions of transactions take place between countries, which means that errors and omissions are highly probable. Consequently, a balancing item that accounts for statistical discrepancies is added to the BOP to ensure balance. Importance of the BOP Tracking International Transactions: The BOP accounts keep track of all international transactions involving money, reflecting the interactions between a country and the rest of the world. These transactions encompass a wide range of fnancial activities, such as trade in goods and services, fnancial investments, and government expenditures. Maintaining Economic Stability: The primary purpose of maintaining BOP accounts is to ensure the stabilityofacountry'seconomy.Bymonitoringtheflowoffundsinandoutofthecountry,policymakers can identify trends, imbalances, and potential economic risks. Surplus andDefcit: Acountry'sBOPcanrevealwhetherithasasurplusordefcitoffunds.Asurplus occurswhenacountryexportsmoregoodsandservicesthanitimports,leadingtoaninflowofcurrency. Conversely, a defcit occurs when a country imports more than it exports, resulting in an outflow of currency. Payment for International Trade: It is essential to understand that any goods or services a country buysorsellstotherestoftheworldmustbepaidfor.TheBOPaccountshelpinrecordingandtracking these payments. Exchange Rate: Exchange rate movements can be influenced by BOP imbalances, as they affect the supply and demand for a country's currency in the foreign exchange market (thiswillbediscussedin detail in an upcoming section).
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