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Balance of Payments

Balance of Payments. A set of accounts called the country’s Balance Of Payments (BOP) summarizes all the transactions by residents, firms and government of one country with their counterparts in the rest of the world. BOP Accounts:. Current Account Capital Account Official Settlements Account.

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Balance of Payments

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  1. Balance of Payments A set of accounts called the country’s Balance Of Payments (BOP) summarizes all the transactions by residents, firms and government of one country with their counterparts in the rest of the world

  2. BOP Accounts: • Current Account • Capital Account • Official Settlements Account

  3. Current Account: • Merchandise Trade • Exports of Goods ( XG ) • Imports of Goods ( MG ) • Services • Banking, Legal, Shipping, Insurance, Travel, Transportation, Consulting, etc. • Investment Income • Unilateral Transfers

  4. Capital Account: • Long-Term Capital Account: a. Transactions in Real Assets b. Transactions in Financial Assets • Short-Term Capital Account: a. Short-Term Financial Assets b. Private Credits

  5. Official Settlements Account: • Changes in Official Reserves: a. Official Gold Reserves; b. Official Foreign Exchange Holdings; c. Reserve Position in the IMF; and d. Special Drawing Rights (SDRs) • Changes in Liabilities to Foreign Authorities

  6. Classify the following transactions in the Mexican BOP • A Mexican auto parts manufacturer sells Ps500,000,000 of parts to a U.S. firm, allowing 30 days’ trade credit until payment is due. • The United States gives Ps10,000,000 of corn to Mexico to help feed earthquake victims in Mexico City.

  7. Classify the following transactions in the Mexican BOP • A U.S. tourist travels to Mazeltan, Mexico, and spends Ps100,000 on hotels and tequila while on vacation. He pays with a check drawn on a Phoenix, Arizona, bank. • Senor De la Madrid in Mexico City receives Ps80,000 in interest from a deposit in a Houston, Texas, bank. He deposits the Ps80,000 in Bank of America in Dallas. What is the value of the current account?

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