EECS 1520 Lecture Notes - Lecture 11: Capital Account
21 Jun 2018
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EECS 1520 Lecture 11 Notes
Introduction
International Flow of Funds
Many MNCs are heavily engaged in international business, such as exporting, importing,
or direct foreign investment in foreign countries.
The transactions arising from international business cause money flows from one
country to another.
The balance of payments is a measure of international money flows and is discussed in
this chapter.
Financial managers of MNCs monitor the balance of payments so that they can
determine how the flow of international transactions is changing over time.
The balance of payments can indicate the volume of transactions between specific
countries and may even signal potential shifts in specific exchange rates.
Thus, it can have a major influence on the long-term planning and management by
MNCs.
Balance of payments
The balance of payments is a summary of transactions between domestic and foreign
residents for a specific country over a specified period of time.
It represents an accounting of a country’s international transactions for a period, usually
a quarter or a year.
It accounts for transactions by businesses, individuals, and the government.
A balance-of-payments statement can be broken down into various components.
Those that receive the most attention are the current account, the capital account, and
the financial account.
The current account represents a summary of the flow of funds between one specified
country and all other countries due to purchases of goods and services or to the cash
flows generated by income-producing financial assets.
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EECS 1520 Full Course Notes
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Document Summary
Many mncs are heavily engaged in international business, such as exporting, importing, or direct foreign investment in foreign countries. The transactions arising from international business cause money flows from one country to another. The balance of payments is a summary of transactions between domestic and foreign residents for a specific country over a specified period of time. The current account represents a summary of the flow of funds between one specified country and all other countries due to purchases of goods and services or to the cash flows generated by income-producing financial assets. Transactions arising from international business cause money flows from one country to another. The balance of payments is a measure of international money flows and is discussed in this chapter. Financial managers of mncs monitor the balance of payments so that they can determine how the flow of international transactions is changing over time.
