schmackers
Member
Hi, i've been reading through the balance of payments and there's a few bits i don't fully understand:
1.) Ok, I'm ok with why the BoP equals zero under a floating exchange rate, but something doesn't seem to fit. If the financial account is made up of direct investment, portfolio investment, other investment and reserve assets, assuming foreigners can just keep on investing here, then how would the CAD = KAS (or vice versa)? Like, if nothing is stopping more and more foreigners buying say, shares, here, wouldn't that change the value of the KAS and thus it wouldn't equal to CAD anymore? I'm not sure if that makes sense. :S
2.) If we borrow overseas to finance our CAD and this is recorded in the financial account, what category is it recorded under? Direct investment? Portfolio investment? All of them? How is it that foreigners lending us money is under any of these?
Also, to clear up, if we sell assets to finance a CAD, that could go under all of the above categories, right? I.e is selling shares a way of financing the CAD?
3.) Ok, if net foreign debt + net foreign equity = net foreign liabilities, does that mean both debt and equity are forms of liabilities? I get that debt is a liability cos we kinda owe them money, but how is equity a liability?
4.) If a country lends more than it borrows, doesn't that mean it doesn't have a net foreign DEBT?
5.) Is tourists bringing in money recorded anywhere? What if they spend it here?
Ok, I know it was really long, but i have an assessment next week and this whole topic of BoP is just one big mess in my head right now. If someone can answer any of the above questions, i would be eternally grateful
THANKS!
1.) Ok, I'm ok with why the BoP equals zero under a floating exchange rate, but something doesn't seem to fit. If the financial account is made up of direct investment, portfolio investment, other investment and reserve assets, assuming foreigners can just keep on investing here, then how would the CAD = KAS (or vice versa)? Like, if nothing is stopping more and more foreigners buying say, shares, here, wouldn't that change the value of the KAS and thus it wouldn't equal to CAD anymore? I'm not sure if that makes sense. :S
2.) If we borrow overseas to finance our CAD and this is recorded in the financial account, what category is it recorded under? Direct investment? Portfolio investment? All of them? How is it that foreigners lending us money is under any of these?
Also, to clear up, if we sell assets to finance a CAD, that could go under all of the above categories, right? I.e is selling shares a way of financing the CAD?
3.) Ok, if net foreign debt + net foreign equity = net foreign liabilities, does that mean both debt and equity are forms of liabilities? I get that debt is a liability cos we kinda owe them money, but how is equity a liability?
4.) If a country lends more than it borrows, doesn't that mean it doesn't have a net foreign DEBT?
5.) Is tourists bringing in money recorded anywhere? What if they spend it here?
Ok, I know it was really long, but i have an assessment next week and this whole topic of BoP is just one big mess in my head right now. If someone can answer any of the above questions, i would be eternally grateful
THANKS!
