International Financial Management: An Analytical Framework

CHAPTER 3

The Balance of Payments: Implications for Exchange Rates

CHAPTER OBJECTIVES

After studying this chapter, you should be able to:

1. Understand the concept of balance of payments (BOP).
2. Discuss the principles of BOP.
3. Understand the components of the current account, capital account, and reserve account.
4. Analyse the association between national income and international economic transactions.
5. Define BOP identity.
6. Analyse the BOP under alternative exchange rate regimes.
7. Discuss the implications of the BOP for money supply.

Introduction

However developed a country may be, it has to depend on other countries for something or the other, as no country can produce all that is required for its people. The economies of the world are necessarily ...