Answer to Question #209194 in Macroeconomics for kev

Question

what is the effect on bop of usa if a new york bank pays interest on its loan to mexico

Answer 1

BOP

The trade balance is a valuation, usually a calendar quarter or year, of a country's foreign transactions over a specific period. It displays the total of exchanges between personal enterprises and government entities in that nation with those in the rest of the globe – both simply financial as well as products or services involved. Each foreign transaction leads to a loan and a debit. Transfers that lead to a country being paid are credited, and operations that lead to a country being left are debits. For example, when in New York someone buys a stereo from Mexico, the transaction is a debit from the United States account and a credit from the New York account (Ye & Tao, 2015). If a Mexican firm delivers an interest rate to a US bank on borrowing, the operation is debited to the US BOP account and the US BOP credits.

The investment plus the accounting records should be balanced with the existing account. The balance of trade declaration total should be zero. For example, the United States must support the difference in terms of buying more commodities and services than trading that is a trade imbalance, by borrowed money or by selling more financial assets, rather than purchasing an excess profit and loss account (McCombie & Thirlwall, 2016). Therefore, a nation with a lasting balance of payments exchanges equity for commodities and services successfully. The country borrows from overseas due to a significant trade imbalance. It seems like an infusion of foreign capital in the current account deficit (Ye & Tao, 2015). In actuality, the accounts are not perfectly offset by statistical errors, accounting agreements, and changes in currency rates, which affect the declared value of transactions.

Parties can arrange trades for fed existing funds (bilaterally) or via intermediaries. As there is no single repository of fed fund operations, the rates they happened are not collected centrally. However, collected data on the transactions of fed money that they have brokered with the New York Fed has volunteered for decades. The New York Fed calculates the FFER and its associated summary statistics with these data. Further academic research and conversations with market players rely on the large-scale FFER representation of the whole world of the transaction in fed funds. It appears as though the balance of payments was infused with foreign cash (McCombie & Thirlwall, 2016). Statistical mistakes, accounting commitments, and exchange rate fluctuations that impact the stated amount of the operations are not completely offset for the balances.

The Federal use four monetary policy instruments to govern interest rates, including open market activities, discount rates, IOERs, and reserve requirements. The banking system impacts the demands and deliveries of the Federal Reserve Banks' balance sheets (Ye & Tao, 2015). The rate of interest on operations in fed money is generally sensible to the level of the financial system's excess reserves. Change to these tools, therefore, controls the frequency of the federal funds.

 

 

 

 

 

 

 

 

References

McCombie, J., & Thirlwall, A. P. (2016). Economic growth and the balance-of-payments constraint.

Springer. <span style="font-size:12.0pt;line-height:200%;font-family:&quot;Times New Roman&quot;,serif; background:white">https://www.boeckler.de/pdf/v_2013_08_02_mccombie.pdf</span>

YE, Y. F., & TAO, S. G. (2015). Impact of RMB Cross-border Transactions on Balance of Payment

Statistics and Management: An Empirical Research Based on SVAR Model. International Business, 01. <span style="font-size:12.0pt;line-height:200%;font-family:&quot;Times New Roman&quot;,serif; background:white">https://en.cnki.com.cn/Article_en/CJFDTotal-DWMY201501010.htm</span>