Essay: Issues in International Finance

Sample Essay

Calculations:

All amounts are in Billions of dollars

a.

Merchandise Trade Balance

Merchandise Trade Balance = Merchandise Exports – Merchandise Imports

Merchandise Trade Balance = 350 – 2,425

Merchandise Trade Balance = -2,075

b.

Balance on Goods and Services

Balance on Goods and Services = Total Exports – Total Imports

Balance on Goods and Services = 2,495 – 2,595

Balance on Goods and Services = 2,495 – 2,595

Balance on Goods and Services = -100

c.

Balance on current account

Balance on current account = Balance on Goods and Services + Net Income and Net transfers

Balance on current account = -100 + 221.5

Balance on current account = 121.5

d.

Financial Account Balance

Financial Account Balance = Outflow of U.S. Capital – Inflow of Foreign Capital

Financial Account Balance = 245 – 100

Financial Account Balance = 145

e.

Statistical Discrepancy

Statistical Discrepancy = Balance on current account + Financial Account Balance

Statistical Discrepancy = 121.5 + 145

Statistical Discrepancy = 266.5

2. a.

When value of the dollar decreases with respect to market conditions or due to the floating exchange rate system it is termed as the depreciation of the dollar whereas when the value of dollar decreases relative to other monetary units it is referred to as devaluation of the dollar, when the U.S Federal Reserve officially decreases the value of the dollar.

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