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Mednarodne finance - vaje

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Mednarodne finance - vaje

    International finance practical sessions

    Lecturer: dr. Vasja Rant

    2. Analysis of the balance of payments and the international investment position

A SELF-ASSESSMENT QUESTIONS

    1. What are autonomous and compensatory transactions in the balance of payments?

    2. Explain the following sub-balances of the balance of payments and their analytical

    relevance!

    a. Trade balance

    b. Current account balance

    c. Basic balance

    d. Overall balance

3. When is the balance of payments considered sustainable?

    a. In the long run

    b. In the medium run

    c. In the short run

    4. Which factors affect sustainability of a current account deficit?

    5. When is it reasonable to consider financing vs. structural adjustment of a current account

    deficit?

    6. When do we consider a country to be in the following positions vis-a-vis the rest of the

    world (ROW)?

    a. Net borrower from ROW

    b. Net lender to ROW

    c. Net capital importer from ROW

    d. Net capital exporter to ROW

    7. What is the link between the balance of payments and the national accounts?

    8. What is the basic difference in concepts between the balance of payments and the

    international investment position?

B - EXERCISES

    9. Uporabite spodnje podatke o tekočem računu plačilne bilance Avstralije in odgovorite na

    naslednja vprašanja

    Australia - current account, 1998 1999 2000 2001 2002 2003

    millions USD

    Goods: exports 55.884 56.096 64.052 63.676 65.099 70.577

    Goods: imports 61.215 65.857 68.865 61.890 70.530 ?

    Services: credit 16.181 17.399 18.677 16.689 17.906 21.205

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    Services: debet 17.272 18.330 18.388 16.948 18.107 21.638

    Income: credit 6.532 7.394 8.984 8.063 8.194 9.457

    Income: debet 17.842 18.968 19.516 18.332 19.884 24.245

    Current transfers: credit 2.651 3.003 2.622 2.242 2.310 2.767

    Current transfers: debet 2.933 3.032 2.669 2.221 2.851 ?

    a. Calculate the trade balance in 1998-2000 b. Calculate the balance of services in 1998-2000? c. Calculate the current account balance in 1998-2000? d. Was Australia a net recepient or a net contributor of unilateral transfers in 2003?

    e. What was the amount of unilateral transfers that Austalian residents appropriated

    to foreigners in 2002, if outflows of unilateral transfers exceeded inflows by $ 63

    millions?

    f. Which item in the table indicates that Australian residents have been paying

    income to non-residents for supplied labor and capital in 2003 and 2004.

    g. How much was the import of goods in 2002 if the current account balance

    amounts to $ -30.674 milliona in the same year?

    10. You obtain the following data about Korean balance of payments from the IMF's

    International Financial Statistics online.

    Balance of Payments South Korea 1998 1999

    millions USD

    40.371 24.522 Current Account, n.i.e.

    132.251 145.375 Goods: Exports f.o.b.

    -90.586 -116.912 Goods: Imports f.o.b.

    41.665 28.463 Trade Balance

    25.565 26.529 Services: Credit

    -24.541 -27.180 Services: Debit

    42.689 27.812 Balance on Goods & Services

    2.675 3.245 Income: Credit

    -8.313 -8.404 Income: Debit

    37.051 22.653 Balance on Gds, Serv. & Inc.

    6.737 6.421 Current Transfers, n.i.e.: Credit

    -3.416 -4.552 Current Transfers: Debit

    171 -389 Capital Account, n.i.e.

    464 95 Capital Account, n.i.e.: Credit

    -293 -484 Capital Account: Debit

    -8.381 12.709 Financial Account, n.i.e.

    -4.740 -4.198 Direct Investment Abroad

    5.412 9.333 Dir. Invest. in Rep. Econ., n.i.e.

    -1.999 1.282 Portfolio Investment Assets

    42 -271 Equity Securities

    -2.041 1.553 Debt Securities

    775 7.908 Portfolio Investment Liab., n.i.e.

    3.856 12.072 Equity Securities

    -3.081 -4.164 Debt Securities

    412 401 Financial Derivatives Assets

    -1.066 -915 Financial Derivatives Liabilities

    6.693 -2.606 Other Investment Assets

    6.970 -203 Banks

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    -36 -164 Monetary Authorities

    -46 -169 General Government

    -194 -2.071 Other Sectors

    -13.868 1.502 Other Investment Liab., n.i.e.

    -6.233 1.418 Banks

    25 148 Monetary Authorities

    4.628 3.309 General Government

    -12.288 -3.372 Other Sectors

    -6.231 -3.581 Net Errors and Omissions

    25.930 33.260 Overall Balance

    -25.930 -33.260 Reserves and Related Items

    -30.968 -22.990 Reserve Assets

    5.038 -10.271 Use of Fund Credit and Loans

    Answer the following questions based on the above data.

    a. What was the amount of income earned by Korean residents from ownership

    stakes in foreign companies and working abroad in 1999?

    b. Were Korean residents net recepients or net contributors of current transfers in

    1998 an 1999?

    c. What was the amount of Korea's savings-invesment gap in 1998 and 1999? Does

    the figure indicate a surpluss or a deficit of savings?

    d. What could be a potential reason for the value +464 for the item capital account:

    credit in 1998, if you take into account that the country was hit by the Asian

    financial crisis in 1997?

    e. What can you deduce from the change in the sign of the item ?Portfolio

    Investment Assets?, which turned from negative in 1998 (-1.999) to positive in

    1999 (+1.282)?

    f. Which BoP items indicate that Korean residents might have been forced to

    withdraw investments in banks abroad in 1998 in order to cover for the lack of

    bank financing from the rest of the world?

    g. Was Korea a net importer or exporter of capital in case of portfolio equity

    investments in 1998 and 1999? Support your argument with a figure! h. Were Korean residents predominantly buying or selling foreign debt securities in

    1998? What about in 1999? By what amount did the value of sales exceed the

    value of purchases (and vice versa)?

    i. How is it possible that both the current account balance and the capital-financial

    account balance (the latter is obtained by summing capital account balance and

    financial account balance) of Korea have a positive sign in 1999? Explain the

    observed imbalance between the current and capital-financial transactions and its

    implications for balancing of Korea's balance of payments as a whole in 1999! j. Which item in the table indicates that Korea had problems with balancing its

    balance of payments in 1998? How would you interpret the change of sign of this

    same item in 1999?

    11. Use the following table about the balance of payments of the PR China to answer the

    questions below

Millions USD 1998 1999 2000 2001 2002 2003

A. Current account balance 31.472 21.115 20.518 35.422 45.875 ?

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B. Capital account balance -47 -26 -35 -54 -50 -48

    C. Financial account balance -6.275 5.204 1.958 34.832 52.774 ?

    D. Net errors and omissions -18.902 -17.641 -11.748 -4.732 7.504 ?

    E. Reserves and related items -47.447 -75.217 -116.586 ? ? ?

a. Calculate reserves and related items in 1998-2000

    b. Calculate the current account balance in 2001

    c. Calculate the financial account balance in 2002

    d. Calculate net errors and ommissions in 2003. Does the rising trend of this item

    from previous years indicate anything?

    e. In which years is China net importer and in which years net exporter of capital

    (support your arguments with figures!)

    f. Calculate the overall balance in individual years

    g. What kind of pressure on the value of the chinese yuan would you expect based on

    the data under category E., ?Reserves and related items?? Remember, Chinese

    exchange rate is fixed!

    h. Has China increased its international monetary reserves in any of the years shown

    in the table?

    12. The table below shows the international investment position of Slovenia in 2006. Answer

    the following questions based on the data contained in the table.

    International investment position Slovenia 2006

    Millions of USD

    Assets 33.102

    Direct investment abroad 4.553

    Portfolio investment 6.760

     Equity securities 2.977

     Debt securities 3.783

    Financial derivatives 35

    Other investment 14.618

     Monetary authorities 231

     General government 229

     Banks 3.842

     Other sectors 10.315

    Reserve assets 7.136

    Liabilities 39.968

    Direct investment in Rep. Econ. 8.923

    Portfolio investment 4.132

     Equity securities 866

     Debt securities 3.266

    Financial derivatives 0

    Other investment 26.913

     Monetary authorities 21

     General government 330

     Banks 14.075

     Other sectors 12.488

    a. The figure under the item ?portfolio investment assets? in the international

    investment position of Slovenia in 2006 is 6.760 millions USD, while the figure

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    under the same item in Slovenia's balance of payments for the same year is -2.677

    millions USD. What is the interpretation of both figures? Are they related? b. What was the amount of international monetary reserves held by Slovenia at the

    end of 2006?

    c. Was Slovenia a net lender to or a net borrower from the rest of the world at the end

    of 2006? Which type of financial investments mostly contributed to Slovenia's

    borrowing/lending status?

    d. Did Slovenia record net assets or net liabilities vis-a-vis the rest of the world in the

    area ob bank investments? How can this situation impact transmission of impulses

    from international financial environment to Slovenia (i.e. the global financial

    crisis)?

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