Balance of Payments: International Transactions & Exchange Rates
Understanding the Balance of Payments
The Balance of Payments (BoP) statistics are used to measure a country’s trade in goods, services, and financial assets with other countries. It records all international economic transactions:
- Revenue transactions involve currency inflows into the country.
- Payment transactions involve currency outflows from the country.
- The balance is the difference between revenues and payments.
The BoP is structurally supported by two main accounts:
1. Current Account Balance
This
Read MoreCorporate Finance: Key Concepts and Calculations
Key Corporate Finance Concepts and Calculations
1. SEVILLANA decides to sell some assets whose net book values at the time of the sale are between 100,000 and 500,000 euros respectively, while its liquidation or residual values are, after taxes, from 150,000 to 400,000 euros. To determine the cash receipts minus cash payments (model of cash flow), we:
b) Adding a positive adjustment of €550,000.
2. According to the dynamic analysis (not classic) solvency:
d) The credibility depends on three parameters:
Understanding Foreign Exchange Rates and Currency Risk
An exchange rate is, simply, the price of one nation’s currency in terms of another currency, often termed the reference currency. There are two kinds of exchange rate transactions: spot and forward. A spot rate is the price at which currencies are traded for immediate delivery (delivery two days later). A forward rate is the price at which foreign exchange is quoted for delivery at a specified future date. When a currency increases in value, it experiences appreciation. When it falls in value and
Read MoreUnderstanding Balance Sheets, Income Statements, and Cash Flow
Understanding Financial Statements
1. Key Information in Financial Statements
What information is contained in the balance sheet, income statement, and statement of cash flows?
The Balance Sheet
The balance sheet is a financial statement that shows a firm’s assets and liabilities at a particular point in time.
Why is it useful? Shareholder’s Equity = Total Assets – Total Liabilities
Balance Sheet Structure
Current Assets:
- Cash and securities
- Receivables
- Inventories
Fixed Assets:
- Tangible assets
- Intangible assets
Current
Read MoreKey Costing Formulas and Financial Statements
Key Costing Formulas
Sales – Variable Expenses (VE) = Contribution Margin (CM) SP per unit – VE per unit = CM per unit BE point in units = Fixed Costs (FC) / CM per unit BE point in dollars = BE units * SP per unit CM Ratio = CM / Sales Operating Leverage = CM / Net income | Target Sales in $ = (Fixed Expenses (FE) + Target Operating Profit) / CM ratio Sales – VE – FE = Operating Income CM – FC = Operating Profit Target Sales in units = (FE + Target Operating Profit) / CM per Unit Safety Margin = Budgeted Sales |
Understanding Balance of Payments, Exchange Rates, and Monetary Policy
Item 7: Balance of Payments and Exchange Rates
The balance of payments reflects a country’s transactions with the rest of the world. The balance of trade is the difference between exports and imports. The balance of goods and services of a country is the difference between exports and imports over a given period. The current account balance is the sum of the balance of goods and services, plus net income, plus net transfers. The financial account balance measures financial flows. The sum of the current
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