tailieunhanh - Lecture Multinational financial management: Chapter 4 - Ngo Thi Ngoc Huyen

Chapter 4 "Balance of payment" Lecture Multinational financial management introduce to you the content: Explain what the balance of payments BOP is study how to analyze BOP, discuss the relationship between the BOP and the gross domestic product, the exchange rate, the interest rate, and the inflation rate,. | CHAPTER FOUR BALANCE OF PAYMENT CHAPTER FOUR OVERVIEW Explain what the balance of payments BOP is Study how to analyze BOP Discuss the relationship between the BOP and the gross domestic product GDP the exchange rate the interest rate and the inflation rate Introduce the history of the degree of the capital mobility and the mechanisms for capital movement OF PAYMENTS The measurement of different forms of international economic transactions between the residents of a country and foreign residents is called the balance of payments BOP Note that the resident is a economic concept and it includes individuals firms nonprofit communities and the government BOP influences and is influenced by other variables such as gross domestic product GDP employment levels price levels exchange rates and interest rates Government policymakers need the data of BOP to evaluate the general competitiveness of domestic industries to set the exchange or interest rate to determine the monetary and fiscal policy etc. 4-3 THE BALANCE OF PAYMENTS BOP data is also important for MNEs as it is a gauge of a nation s competitiveness or health For a MNE both home and host country BOP data is important because - BOP is an indication of pressure on a country s foreign exchange rate - Change in a country s BOP may signal the imposition or removal of controls in various sorts of payments . removal of the capital outflow control may reduce the balance of the financial account in BOP - A forecast of a country s market potential especially in the short run . a country with trade deficit may welcome investments that can increase its exports 4-4 1 TYPICAL BOP TRANSACTIONS Each of the following represents an international economic transaction that is counted in and captured in the . BOP - A . subsidiary of a foreign MNE acts as a distributor for the MNE s products in the . market - A firm manages the construction of a major water treatment facility in a foreign country - The . .