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8/14/2019 Are You Always Spending Your Money for Imported Goods?
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8/14/2019 Are You Always Spending Your Money for Imported Goods?
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8/14/2019 Are You Always Spending Your Money for Imported Goods?
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Are you always
spending yourmoney forimported goods?
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BALANCE OF PAYMENT
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Chapter Roadmap
Define Balance of Payments,
Discuss Composition of Balance ofPayments,
Explain the Causes of balance ofpayments Deficits, and
Explain the Solutions to Balance ofPayments Deficits
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OVERVIEW
INTERNATIONAL TRADE- exchange ofgoods and services between one
country and other countries
$ Dollar- usually the medium ofinternational payment system
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Definition of TERMS
Balance of Payment
-annual accounting statement of all
financial transactions of a country with
the rest of the world.
-include transactions of individuals,
businessmen & government of one
country with individuals, businessmen &
government of other countries
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Definition of TERMS
If deficit- BSP has to draw on its officialmonetary reserves( like gold or US
Dollar)
- IF not sufficient BSP obtain foreignloans( borrowed money from the WB &
IMF)
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Definition of TERMS
Balance of Trade- a situation where thevalue of the exports of a country is equal
to the value of its imports
Visible Items- refers to goods in thebalance of payments
Invisible Items- pertain to services inthe balance of payments
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Definition of TERMS
Surplus Balance of Payments- asituation where the receipts( income) are
greater than the payments ( expenses)
Deficit Balance of Payments- asituation where the receipts are lesser
than the payments.
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Definition of TERMS
Credits- these are the receipts ofindividuals, organization or government
coming from other countries.
( eg salaries of overseas workers, IMF
loans, foreign donations, US bases
rentals, export earnings, expenses of
tourists in the country)
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Definition of TERMS
Debits - these are the payments ofindividuals, org. or gov. of a country to
other countries.
- These are outflows of resources from
country
- e.g ( import payments, travels abroad,
repayment of WB loans, foreign studies,
donations, investment in New York
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COMPONENTS OF BOPs
> Current Account> Capital Account>Official Monetary
Reserves/ Cash Account
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HYPOTHETICAL BOP/s OF
COUNTRY X
Items Cr. Dr.
Current Accounts
Goods
exports +
imports -
Services
Japanese Tourists +
Filipino Students in US -
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HYPOTHETICAL BOP/s OF
COUNTRY X
Item Cr. Dr.
Capital Account
Private Foreign Inv. +
World Bank Loans +United nations grants +
Debt Payment to WB-IMF -
Cash AccountMonetization of Gold +
Allocation of SDRs +
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CAUSES OF BOPs DEFICITS
Structural or Real Causes
-traditional exports of LDCs are products
which are inelastic
- lower price of the primary products
- exports earning of LDCs are low
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SOLUTIONS TO BOP
Adjustments of BOP- equalize receipts& payments
Adjustments of BOP- means solving ofBOP
To eliminate BOP Deficits increasedreceipts (CREDIT) and decrease
payments( DEBIT)
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SOLUTIONS TO BOP
Reduce Payments- governmentexpenditures are reduced.
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SOLUTIONS TO BOP
BSP will execute the followingmeasures:
1. Increase cash margins for the
opening of letter of credit to theimportation of luxuries & other non-essential goods
2. Total ban on the importation ofluxuries & other non-essential goods
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SOLUTIONS TO BOP
3. Limit dollar allocation to
importers of said goods, together
with unnecessary foreign travel4. impose higher exchange rate for
the importation of luxuries & other
non-essential goods
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QUIZ
Essay.
1. Briefly discuss one cause of
balance of payments deficits. ( 5points)
( sheet of paper, maximumof 5 sentences.)