Chapter 3 - The balance of payments and the effective exchange rate. The objectives of this chapter are: The objectives of this chapter are: To define the balance of payments, to examine the australian balance of payments statistics, to illustrate the relation between the balance of payments and the foreign exchange market, . | Lecture International finance An analytical approach 3 e Chapter 3 - Imad A. Moosa Chapter 3 The Balance of Payments and the Effective Exchange Rate Objectives To study the structure of the balance of payments To illustrate how the BOP is related to the FX market To introduce the concept of the effective exchange rate Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 3-2 Definition The balance of payments BOP is a systematic record of all economic transactions between the residents of the reporting country and the rest of the world over a specified period of time. Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 3-3 Important elements in the definition Rest of the world Economic transactions Resident Flows versus stocks Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 3-4 Important elements in the definition cont. The BOP records changes in assets and liabilities Figures may or may not be seasonably adjusted Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 3-5 Structure of the BOP The BOP consists of the current account and the financial account Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 3-6 Components of the current account Merchandise account trade balance Net services Current transfers Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 3-7 The financial account Records official and non-official net financial flows A balancing item is added to account for errors and .
