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Balance Of Payment
Importance of BOP
BOP Accounts
Current Account
Current Account
Capital Account
Capital Account
Statistical Discrepancies
BOP Identity
Balance Of Payment
Country A:
Imports Widget
Exchanges CurrencySells own Currency To buy Country Bs Currency to Pay for Widget Creates a supply of Country As currency Causing value to Decrease Creates Demand for Country Bs Currency Causing value to Increase
Disequilibrium in BOP
A countrys balance of payments is in
disequilibrium when there is no perfect equality between the demand and supply for foreign exchange.
Disequilibrium may take place either in the form
Flight of Capital
Globalization
4. Exchange Control
3. Export Promotion
4. Import Substitution
Limitations of BOP
Sources of information used to prepare BOP statement
are varied namely central bank, institutions linked with external trade such as EXIM Bank, custom authorities etc.
A perfect coherence among these sources may not be
possible.
Thus the account Errors and Omissions serves to bring
Limitations of BOP
BOP statement is established in terms of transaction
operations have been done in other currencies. This causes the problem of exchange gain or loss, which is ignored. Countries like Japan prepare BOP in two currencies i.e. Yen and USD.
GOLD STANDARD
which allowed to fix prices of its domestic currency in terms of a specified amount of gold.
Eg. $100 = 1 ounce of gold
History of Gold
Gold was used as standard in 643 B.C. to
create coinage.
Wealth = amount of gold a person holds. Slowly the use of gold as money evolved, from
coins to paper redeemable by coins, to a concept that was loosely tied to its value in gold.
Origin
Gold standard was mainly used during the period of
standard monetary system, the Bretton Woods monetary system created as its successor.
because it also depended heavily on gold reserves, it was abandoned in 1971 when U.S President Nixon "closed the gold window."
associated with circulating gold coins, or with the unit of value defined in terms of one particular circulating gold coin in conjunction with subsidiary coinage made from a lesser valuable metal.
Gold Bullion Standard: a system in which gold coins
do not circulate, but in which the authorities have agreed to sell gold bullion on demand at a fixed price in exchange for the circulating currency.
Bimetallism
A combination of Gold and Silver standard
is called as Bimetallism.
Silver standard was used in United States in
1800s.
U.S. had bimetallism both gold and silver
standard.
Recent Times
Fiat Money- means money that is
international finance. International liquidity is foreign currency or gold in the reserve of any country. At micro level, you can understand international liquidity as cash in your pocket for operation of business.
associated with international payments. It refers to the generally accepted official means of settling imbalances in international payments. international liquidity comprises two elements, viz., owned reserves and borrowing facilities.
Source of Liquidity
Broadly, they can be classified into two categories:
Owned resources. Borrowing facilities.
Qualitative
ADEQUACY OF LIQUIDITY
cent per year; and total international liquidity at 2.7 per cent per year, on the other hand, the world trade has since 1950 grown at the annual rate of 7.5 per cent per year.
2.Distribution of liquidity among the various
countries of the world is also very uneven. Some countries have too much liquidity, -whereas others have too little
liquidityis very much limited and also cannot be increased according to the needs.
international liquidity. Within the framework provided by its Articles, it is making all efforts to increasing the supply of international liquidity. The measures-taken in this direction are; (a)increase in quotas. (b) allocation of SDRs. And (c) introduction of new lending facilities and expansion of existing facilities.
international reserves. It means resources available to individual countries to meet their balance of payments deficits. In this context, various issues are considered such as sources of liquidity, adequacy, IMF role and criticisms. The SDRs role and uses, valuation and allocation of SDRs are highly related, in international liquidity
SDR
IMF in 1969.
SDRs are allocated to member countries in proportion to
Why SDRs?
To support the Bretton Woods fixed exchange
to creation of a new international reserve asset under the auspices of the IMF.
SDR Valuation
The value of the SDR initially defined as 0.888671 grams
IMF's website.
currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market.
In the most recent review (in November 2010), the weights of the currencies in the SDR basket were revised based on the value of the exports of goods and services and the amount of reserves denominated in the respective currencies that were held by other members of the IMF.
Board
1.506360
U.S.$1.00 = SDR SDR1 = US$ 0.663852 1.50636
concessional)IMF loans Interest paid and charged to members on their SDR holdings and charged on their SDR allocations. The SDR interest rate is determined weekly. Is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.
July 23 to July 29
currency Currency amount under rule 0-1 A 0.4230 12.1000 0.1110 0.6600 Exchange rate against the SDR B 0.810239 0.0084334 1.04268 0.66413 Interest rate Product C (A*B*C)
quotas of the members. If a member's SDR holdings rise above its allocation, it earns interest on the excess If it holds fewer SDRs than allocated, it pays interest on the shortfall.
Kinds Of Allocation
General Allocations Special Allocations
Recent Figures
GENERAL ALLOCATION UNITED STATES 27539.1 SPECIAL ALLOCATION 2877.0 TOTAL
30416.2
GERMANY
9643.1
1205.3
10848.4
CHINA
RUSSIA INDIA
5997.3
4407.4 3082.5
755.6
1264.4 214.6
6752.9
5671.8 3297.1
prescribed holders to ensure that SDRs can be exchanged for freely usable currencies.
For more than two decades, the SDR market has functioned
voluntary trading arrangements, the Fund can activate the designation mechanism