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The international finance environment

The measurement of all international transactions in and out of a country over a year is a difficult task Mistakes, errors, and statistical discrepancies will and do occur Current and capital account entries are recorded independent of one another, not together as this accounting method would prescribe | Topic 4: The international finance environment I. The balance of payment (BOP) II. The Monetary system III. The foreign exchange market I. Introduction The measurement of all international economic transactions between the residents of a country and foreign residents is called the balance of payments (BOP) The two major sub accounts of the balance of payments are: Current account Capital account I. Fundamentals of Balance of Payments Accounting The balance of payments must balance Subaccounts may be imbalanced Three main elements to the process of measuring international economic activity include: Identifying what is and is not an international economic transaction Understanding how the flow of goods, services, assets, and money creates debits and credits to the overall BOP Understanding the bookkeeping procedures for BOP accounting I. Defining International Transactions Identifying many international transactions is ordinarily not difficult However, some international . | Topic 4: The international finance environment I. The balance of payment (BOP) II. The Monetary system III. The foreign exchange market I. Introduction The measurement of all international economic transactions between the residents of a country and foreign residents is called the balance of payments (BOP) The two major sub accounts of the balance of payments are: Current account Capital account I. Fundamentals of Balance of Payments Accounting The balance of payments must balance Subaccounts may be imbalanced Three main elements to the process of measuring international economic activity include: Identifying what is and is not an international economic transaction Understanding how the flow of goods, services, assets, and money creates debits and credits to the overall BOP Understanding the bookkeeping procedures for BOP accounting I. Defining International Transactions Identifying many international transactions is ordinarily not difficult However, some international transactions are not obvious I. The BOP as a Flow Statement The BOP is often believed to be a balance sheet rather than a cash flow statement There are two types of business transactions that dominate the BOP: Real assets Financial assets BOP Accounting: Double-Entry Bookkeeping BOP employs an accounting technique called double-entry bookkeeping In this age-old method every transaction produces a debit and a credit of the same amount A debit is created whenever: An asset is increased A liability is decreased An expense is increased A credit is created whenever: An asset is decreased A liability is increased An expense is decreased BOP Accounting: Double-Entry Bookkeeping The measurement of all international transactions in and out of a country over a year is a difficult task Mistakes, errors, and statistical discrepancies will and do occur Current and capital account entries are recorded independent of one another, not together as this accounting method would prescribe The