Multinational Financial Management, 10th solution manual ch_05

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1、1CHAPTER5THEBALANCEOFPAYMENTSANDINTERNATIONALECONOMICLINKAGESThepurposeofthischapteristohelpstudentsunderstandthefinancialandreallinkagesbetweenthedomesticandworldeconomiesandhowtheselinkagesaffectbusinessviability.Itidentifiesthebasicforcesunderlyingtheflowsofgoods,serv

2、icesandcapitalbetweencountriesandrelatestheseflowstokeypolitical,economic,andculturalfactors.Thesetradeandcapitalflowsaresummarizedinthebalanceofpaymentsstatistics.KeyPoints1.Thebalanceofpaymentsisanaccountingstatementthatshowsthesumofeconomictransactionsofindividuals,bu

3、sinessesandgovernmentagencieslocatedinonenationwiththoselocatedintherestoftheworldduringaspecifiedperiod.Thus,theU.S.balanceofpaymentsforagivenyearisanaccountingofalltransactionsbetweenAmericansandnonAmericansduringtheyear.2.Thebalance-of-paymentsstatementisbasedondoubl

4、eentrybookkeeping;everytransactionrecordedasacreditrequiresanequalandoffsettingdebitentry,andviceversa.Adebitentryshowsapurchaseofforeigngoods,services,andassetsoradeclineinliabilitiestoforeigners.Acreditentryshowsasaleofdomesticgoods,services,andassetsoranincreaseinlia

5、bilitiestoforeigners.3.Thebalanceofpaymentsoftenisdividedintoseveraldifferentcomponents.EachshowsaparticularkindoftransactionsuchasmerchandiseexportsorforeignpurchasesofU.S.governmentsecurities.Themostbasicdistinctionamongtransactionsinthebalanceofpaymentsisbetweenthoset

6、hatrepresentpurchasesandsalesofgoodsandservicesinthecurrentperiod,calledthecurrentaccount,andthosethatrepresentcapitaltransactions,calledthecapitalaccount.Changesinofficialreservesappearontheofficialreservesaccount.4.Sincedoubleentrybookkeepingensuresthatdebitsequalcred

7、its,thesumofalltransactionsiszero.Absentofficialreservetransactions,acapitalaccountsurplusmustjustoffsetthecurrentaccountdeficit,andacapitalaccountdeficitmustoffsetacurrentaccountsurplus.5.Thetotalsizeofthecurrentaccountdeficitisamacroeconomicphenomenon;thereisabasicacco

8、untingidentitythatanation'scurrentaccountdeficitreflectsexcessdomesticspending.Equivalently,acurrentacc