2
International Fund Flows
Chapter Objectives
To explain the key components of the
balance of payments; and
2-2
Balance of Payments
The balance of payments is a summary of
transactions between domestic and
foreign residents for a specific country
over a specified period of time.
2-3
Current Account
The current account summarizes the flow
of funds between one specified country
and all other countries due to purchases
of goods or services, or the provision of
income on financial assets.
+
+
+
= $1,279
$1,263
246
259
= $1,768
$712
292
275
$68
$557
2-5
Capital Account
The capital account summarizes the flow
of funds resulting from the sale of assets
between one specified country and all
other countries.
2-6
2-8
Distribution of
U.S. Exports
and Imports
2-9
U.S.
Balance
of Trade
Over Time
2 - 10
Trade Agreements
Many agreements have been made to
reduce trade restrictions:
1988 U.S. and Canada free trade pact
North American Free Trade Agreement
(NAFTA)
General Agreement on Tariffs and Trade
(GATT)
Single European Act and the European
Union
2 - 11
Trade Disagreements
However, even without tariffs and quotas,
governments seem always able to find
strategies that can give their local firms an
edge in exporting:
different environmental, labor laws
bribes, government subsidies (dumping)
tax breaks for specific industries
exchange rate manipulations
2 - 12
Trade Disagreements
Other trade-related issues include:
2 - 13
2 - 15
Correcting
Trade Deficit Balances
By reconsidering the factors that affect
the balance of trade, some common
correction methods can be developed.
2 - 18
Time
J Curve
Deterioration due to
dollar depreciation
Change in purchasing
power caused by
weaker dollar
2 - 19
2 - 20
Distribution of DFI
For 2003, in millions of dollars
U.S. DFI
All countries
America
Canada
Mexico
Europe
Germany
Netherlands
Switzerland
United Kingdom
Africa
Middle East
Asia & Pacific
Japan
151,884
26,997
13,826
5,667
99,191
8,676
14,968
14,444
39,548
2,211
2,093
21,392
5,800
100.0%
17.8%
9.1%
3.7%
65.3%
5.7%
9.9%
9.5%
26.0%
1.5%
1.4%
14.1%
3.8%
100.0%
42.5%
30.6%
6.5%
22.1%
1.4%
-2.1%
-23.5%
-7.7%
-0.2%
1.8%
33.9%
21.8%
2 - 21
Privatization
Exchange Rates
2 - 23
Factors Affecting
International Portfolio Investment
Tax Rates on Interest or Dividends
Interest Rates
Exchange Rates