Podcast
Questions and Answers
A current account deficit occurs when a country spends less on imports than it receives on exports.
A current account deficit occurs when a country spends less on imports than it receives on exports.
False
The financial account reflects both positive and negative entries related to international transactions.
The financial account reflects both positive and negative entries related to international transactions.
True
When the Philippines donates P100 million worth of vaccines to an African country, it results in negative entry in the merchandise trade balance.
When the Philippines donates P100 million worth of vaccines to an African country, it results in negative entry in the merchandise trade balance.
False
The trade deficit refers specifically to a situation where exports exceed imports.
The trade deficit refers specifically to a situation where exports exceed imports.
Signup and view all the answers
A donation of goods results in an entry in net unilateral transfers that offsets its entry in the merchandise trade balance.
A donation of goods results in an entry in net unilateral transfers that offsets its entry in the merchandise trade balance.
Signup and view all the answers
Dividends received from shares are recorded in the financial account.
Dividends received from shares are recorded in the financial account.
Signup and view all the answers
The net international investment position (NIIP) indicates a country's total foreign transactions in a given period.
The net international investment position (NIIP) indicates a country's total foreign transactions in a given period.
Signup and view all the answers
Shares represent units of equity ownership in a corporation that provide for equal distribution of any residual profits.
Shares represent units of equity ownership in a corporation that provide for equal distribution of any residual profits.
Signup and view all the answers
Income receipts on PH-owned foreign assets enter the income balance with a positive sign.
Income receipts on PH-owned foreign assets enter the income balance with a positive sign.
Signup and view all the answers
Income payments on foreign-owned PH-assets enter the income balance with a positive sign.
Income payments on foreign-owned PH-assets enter the income balance with a positive sign.
Signup and view all the answers
Earnings of PH residents employed abroad are included in the income balance as a positive entry.
Earnings of PH residents employed abroad are included in the income balance as a positive entry.
Signup and view all the answers
International interest and dividend receipts are excluded from the income balance.
International interest and dividend receipts are excluded from the income balance.
Signup and view all the answers
Earnings distributed or reinvested by PH-owned firms operating abroad count negatively in the income balance.
Earnings distributed or reinvested by PH-owned firms operating abroad count negatively in the income balance.
Signup and view all the answers
Payments made by PH residents to foreign students studying in the PH are considered negative entries in the income balance.
Payments made by PH residents to foreign students studying in the PH are considered negative entries in the income balance.
Signup and view all the answers
The income balance is calculated as the sum of income receipts on foreign assets and income payments on foreign-owned assets.
The income balance is calculated as the sum of income receipts on foreign assets and income payments on foreign-owned assets.
Signup and view all the answers
Philippine-owned assets do not contribute positively to the income balance.
Philippine-owned assets do not contribute positively to the income balance.
Signup and view all the answers
When a Filipino company pays P100,000 in dividends to an American shareholder at an exchange rate of 50 pesos per dollar, the U.S. current account increases by $2,000.
When a Filipino company pays P100,000 in dividends to an American shareholder at an exchange rate of 50 pesos per dollar, the U.S. current account increases by $2,000.
Signup and view all the answers
The Philippine current account would increase by P100,000 after paying dividends to an American shareholder.
The Philippine current account would increase by P100,000 after paying dividends to an American shareholder.
Signup and view all the answers
If a foreign visitor pays P5,000 for lodging in the Philippines, it represents an export of services, thus increasing the Philippine current account.
If a foreign visitor pays P5,000 for lodging in the Philippines, it represents an export of services, thus increasing the Philippine current account.
Signup and view all the answers
The financial account of the Philippines increases by P5,000 when a foreign tourist pays for a hotel stay using a credit card.
The financial account of the Philippines increases by P5,000 when a foreign tourist pays for a hotel stay using a credit card.
Signup and view all the answers
Double-entry bookkeeping means that every transaction will affect both the current account and the financial account equally.
Double-entry bookkeeping means that every transaction will affect both the current account and the financial account equally.
Signup and view all the answers
An international income receipt in the U.S. can occur without affecting the Philippine financial account.
An international income receipt in the U.S. can occur without affecting the Philippine financial account.
Signup and view all the answers
When a Japanese tourist pays for a hotel stay in the Philippines, it is considered a financial import for the Philippine economy.
When a Japanese tourist pays for a hotel stay in the Philippines, it is considered a financial import for the Philippine economy.
Signup and view all the answers
The balance of payments records each transaction only once.
The balance of payments records each transaction only once.
Signup and view all the answers
Signup and view all the answers
Study Notes
International Monetary Economics
- International monetary economics, also known as international macroeconomics or international finance, focuses on monetary and macroeconomic interactions between two or more nations.
- It examines the global financial system, international monetary systems, balance of payments, exchange rates, foreign direct investment, and their relationship to international trade.
Balance-of-Payments (BOP)
- A country's international transactions are recorded in the balance-of-payments accounts.
- The BOP has current and financial accounts.
Balance-of-Payment (BOP) - Current Account
- Records exports and imports of goods and services, plus international income receipts or payments.
- Exports are recorded with a positive sign (+).
- Imports are recorded with a negative sign (-).
Balance-of-Payment (BOP) - Financial Account
- Records transactions in financial assets between residents and nonresidents.
- Sales of assets to nonresidents are exports, given a positive sign (+).
- Purchases of assets from nonresidents are imports, given a negative sign (-).
Current Account Example
- If a Filipino buys a Samsung phone (P40,000) from South Korea, the Philippine current account decreases by P40,000, representing an import.
- If a Filipino company pays dividends ($2,000) to an American shareholder (exchange rate 50 pesos = $1), the US current account increases by $2,000, representing an international income receipt for a US resident.
Double-Entry Bookkeeping
- Each transaction in the balance of payments is recorded twice—once with a positive sign and once with a negative sign.
- Any change in the current account is reflected by an equivalent but opposite change in the financial account.
- Example: A Japanese visitor using a credit card at a Filipino hotel. The current account increases by the expenditure (e.g., P5,000). The financial account decreases to reflect the corresponding sale/transfer of assets.
Detailed Decomposition of the Current Account
-
Current Account Balance is comprised of:
- Trade Balance: Merchandise Trade Balance + Services Balance
- Income Balance: Net Investment Income + Net International Compensation to Employees
- Net Unilateral Transfers
Detailed Decomposition of the Trade Balance
- Trade Balance (or Balance on Goods and Services) records net exports.
- Merchandise Trade Balance: Measured by net exports of goods
- Services Balance: Measured by net exports of services (transportation, travel, legal assistance, etc.)
Detailed Decomposition of the Income Balance
- Income Balance: net investment income, and net international compensation to employees.
Net Unilateral Transfers
- Records the difference between gifts received from and to the rest of the world (e.g., foreign aid).
Detailed Decomposition of Financial Account
- Financial Account Balance: Increase in foreign-owned assets in the Philippines OR increase in PH-owned assets abroad.
- This includes PH securities held by foreigners, PH currency held by foreigners, PH borrowing from foreign banks, and foreign direct investment in the PH. As well as Foreign securities, PH bank lending to foreigners, and PH direct investment abroad.
International Transactions and Financial Accounts
- International transactions involving financial assets generate two offsetting entries in the financial account, with no entry in the current account.
- Example: A Philippine resident buying shares from a US company. This creates a positive entry (sale of US dollars) and a negative entry (purchase of shares).
International Transactions and Current Accounts
- International transactions such as gifts or donations create entries in the current account.
- Example: Philippines donating PPE to an African nation. This shows a positive entry in merchandise trade and a negative entry in net unilateral transfers.
Current Account Deficit vs. Trade Deficit
- Current Account deficit occurs when imports exceed exports.
- Trade deficit occurs when imports exceed exports in the goods sector alone
Net International Investment Position (NIIP)
- NIIP measures a country's net foreign wealth (foreign assets owned by residents minus assets owned by non-residents).
- A negative NIIP implies external debt.
- NIIP is considered a stock variable, whereas the current account balance (CAB) is a flow variable.
- Changes in the NIIP are primarily determined by the CAB.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Test your knowledge on international monetary economics, including the balance of payments, exchange rates, and financial systems. This quiz covers concepts related to both current and financial accounts within the broader context of international finance.
