Balance of Payments Current Account • • • • Bal. on Goods Bal. on Services Bal. on Income Bal. on Current Transfers Capital Account Capital Transfers Financial Account • • • • Direct Invest. Portfolio Invest. Other Invest. Reserve Assets.
Download ReportTranscript Balance of Payments Current Account • • • • Bal. on Goods Bal. on Services Bal. on Income Bal. on Current Transfers Capital Account Capital Transfers Financial Account • • • • Direct Invest. Portfolio Invest. Other Invest. Reserve Assets.
Slide 1
Balance of Payments
Current
Account
•
•
•
•
Bal. on Goods
Bal. on Services
Bal. on Income
Bal. on Current
Transfers
Capital
Account
Capital Transfers
Financial
Account
•
•
•
•
Direct Invest.
Portfolio Invest.
Other Invest.
Reserve Assets
Slide 2
back
• Balance on GOODS: we buy and sell goods internationally.
The value of
minus
Reciepts for Exported GOODS
Payments for Imported GOODS
• Balance on SERVICES: we buy and sell services such as tourism
and insurance.
Current
Account
The value of Reciepts for SERVICES sold
minus Payments for SERVICES bought
• Balance on INCOME: NZers invest overseas to earn income and
international investors do the same in NZ.
The INCOME earned from NZ investment abroad
minus INCOME paid the overseas investment in NZ
• Balance on CURRENT TRANSFERS: examples would include aid
payments or pensions paid internationally.
The value of
minus
Reciepts
Payments
Slide 3
back
This account includes:
• all transactions that involve the receipt or payment of capital
transfers (eg debt forgiveness, transfer of migrants’ wealth )
• the acquisition or disposal of non-produced, non-financial
assets (eg patents, copyrights,
Capitaletc)
Account
Slide 4
back
• Net Indirect Investment: private investment that involves taking
ownership of 10% or more of a business overseas.
• Net Portfolio Investment: international investment that takes less
than 10% ownership.
• Other Investment:
Financial
trade credits, overseas loans and deposits.
Account
• Reserve Assets: NZ’s official overseas reserves (currency) held by
the RBNZ or Treasury.
These are all NET flows,
found by deducting
the inflow from the outflow
Slide 5
The combination of the:
Current
Account
+
Capital
Account
+
Financial
Account
represents the country’s:
Balance of Payments
If a country overspends on its Current Account (eg: buys more
goods than it sells), it must borrow on its Financial Account to
fund this excess spending.
Technically, therefore, the Balance of Payments should always
In practice it is not, so any residual balance
be zero.
is recorded in the Financial Account as:
Net Errors and Omissions
Need to
know MORE?
Slide 6
Classifying Trade Transactions
Copy the following table and correctly classify the transactions. Some may
go into more than one column.
Bal on
Goods
Singapore Air sells tickets on an
Auckland/Singapore flight to NZers
Air NZ purchases a new aircraft overseas
Fonterra sells $30m of milk powder to
Africa
Bal on
Service
Current
Account
Fletcher Forests buys 10,000 h of forests
in Canada
Peter Jackson’s film company earns $5m
from its investment in a US company
The NZ government gives $5m to
rebuilding schools in Iraq
Financial
Account
Slide 7
Calculating Trade Balances
Use the following information to calculate the balances asked for:
$m
Export of Goods
31 689
Export of Services
11 450
Import of Goods
30 854
Given these balances:
Import
of is
Services
What
the Balance of Payments? 10 962
$502m
Inflow of Current Transfers
Outflow of Current Transfers
Income
from
Foreign
Investment
What
is the
value of
Net from
ErrorsInvestment
and Omissions?
Income
Abroad
Balance on Goods:
$835m
Balance on Services: $488m
Balance on Income: -$6782m
1 453
957
8 456
1 674
Capital Account Inflow-$502m
532
Capital Account Outflow
167
Foreign Investment in NZ
6 081
NZ Investment Abroad
1 985
Balance on Current Transfers:
$496m
Balance on Current Account:
-$4963m
Balance on Capital Account:
$365m
Balance on Financial Account:
$4096m
Slide 8
Calculating Trade Balances (the financial account)
Use the following information to calculate the balances asked for:
$m
New Zealand Investment Abroad
Direct Investment
269
Portfolio Investment
996
Other Investment
Reserve Assets
2 496
Net Portfolio Investment:
a net INFLOW of $1393m
-480
Foreign Investment in New Zealand
Direct Investment
Net Direct Investment:
a net INFLOW of $349m
618
Portfolio Investment
2 389
Other Investment
1 037
Balance on Financial Account:
a net INFLOW of $763m
What impact is this balance going to
have on other parts of the Balance
of Payments?
Slide 9
End of slide show. Click to exit
Slide 10
Why should the Balance of Payments always equal zero?
So,for
If,
in example,
theory at our
least,
spending
whatever
onhappens
imports is
togreater
the Current
than our
export receipts
Account
will be our
balanced
Current
byAccount
an opposite
will move
change
into
to deficit
the
(a
net outflow
Financial
Account
of funds).
To pay for our overspending we must borrow, recorded as an
inflow on the Financial Account.
back
Surplus
Deficit
Inflow
Current
Account
Balance
Financial
Account
Balance
Outflow
Balance of Payments
Current
Account
•
•
•
•
Bal. on Goods
Bal. on Services
Bal. on Income
Bal. on Current
Transfers
Capital
Account
Capital Transfers
Financial
Account
•
•
•
•
Direct Invest.
Portfolio Invest.
Other Invest.
Reserve Assets
Slide 2
back
• Balance on GOODS: we buy and sell goods internationally.
The value of
minus
Reciepts for Exported GOODS
Payments for Imported GOODS
• Balance on SERVICES: we buy and sell services such as tourism
and insurance.
Current
Account
The value of Reciepts for SERVICES sold
minus Payments for SERVICES bought
• Balance on INCOME: NZers invest overseas to earn income and
international investors do the same in NZ.
The INCOME earned from NZ investment abroad
minus INCOME paid the overseas investment in NZ
• Balance on CURRENT TRANSFERS: examples would include aid
payments or pensions paid internationally.
The value of
minus
Reciepts
Payments
Slide 3
back
This account includes:
• all transactions that involve the receipt or payment of capital
transfers (eg debt forgiveness, transfer of migrants’ wealth )
• the acquisition or disposal of non-produced, non-financial
assets (eg patents, copyrights,
Capitaletc)
Account
Slide 4
back
• Net Indirect Investment: private investment that involves taking
ownership of 10% or more of a business overseas.
• Net Portfolio Investment: international investment that takes less
than 10% ownership.
• Other Investment:
Financial
trade credits, overseas loans and deposits.
Account
• Reserve Assets: NZ’s official overseas reserves (currency) held by
the RBNZ or Treasury.
These are all NET flows,
found by deducting
the inflow from the outflow
Slide 5
The combination of the:
Current
Account
+
Capital
Account
+
Financial
Account
represents the country’s:
Balance of Payments
If a country overspends on its Current Account (eg: buys more
goods than it sells), it must borrow on its Financial Account to
fund this excess spending.
Technically, therefore, the Balance of Payments should always
In practice it is not, so any residual balance
be zero.
is recorded in the Financial Account as:
Net Errors and Omissions
Need to
know MORE?
Slide 6
Classifying Trade Transactions
Copy the following table and correctly classify the transactions. Some may
go into more than one column.
Bal on
Goods
Singapore Air sells tickets on an
Auckland/Singapore flight to NZers
Air NZ purchases a new aircraft overseas
Fonterra sells $30m of milk powder to
Africa
Bal on
Service
Current
Account
Fletcher Forests buys 10,000 h of forests
in Canada
Peter Jackson’s film company earns $5m
from its investment in a US company
The NZ government gives $5m to
rebuilding schools in Iraq
Financial
Account
Slide 7
Calculating Trade Balances
Use the following information to calculate the balances asked for:
$m
Export of Goods
31 689
Export of Services
11 450
Import of Goods
30 854
Given these balances:
Import
of is
Services
What
the Balance of Payments? 10 962
$502m
Inflow of Current Transfers
Outflow of Current Transfers
Income
from
Foreign
Investment
What
is the
value of
Net from
ErrorsInvestment
and Omissions?
Income
Abroad
Balance on Goods:
$835m
Balance on Services: $488m
Balance on Income: -$6782m
1 453
957
8 456
1 674
Capital Account Inflow-$502m
532
Capital Account Outflow
167
Foreign Investment in NZ
6 081
NZ Investment Abroad
1 985
Balance on Current Transfers:
$496m
Balance on Current Account:
-$4963m
Balance on Capital Account:
$365m
Balance on Financial Account:
$4096m
Slide 8
Calculating Trade Balances (the financial account)
Use the following information to calculate the balances asked for:
$m
New Zealand Investment Abroad
Direct Investment
269
Portfolio Investment
996
Other Investment
Reserve Assets
2 496
Net Portfolio Investment:
a net INFLOW of $1393m
-480
Foreign Investment in New Zealand
Direct Investment
Net Direct Investment:
a net INFLOW of $349m
618
Portfolio Investment
2 389
Other Investment
1 037
Balance on Financial Account:
a net INFLOW of $763m
What impact is this balance going to
have on other parts of the Balance
of Payments?
Slide 9
End of slide show. Click to exit
Slide 10
Why should the Balance of Payments always equal zero?
So,for
If,
in example,
theory at our
least,
spending
whatever
onhappens
imports is
togreater
the Current
than our
export receipts
Account
will be our
balanced
Current
byAccount
an opposite
will move
change
into
to deficit
the
(a
net outflow
Financial
Account
of funds).
To pay for our overspending we must borrow, recorded as an
inflow on the Financial Account.
back
Surplus
Deficit
Inflow
Current
Account
Balance
Financial
Account
Balance
Outflow