International Finance

1 第一章：课程概述

Chapter1 Intro

TextBook: 10th 国际经济学下册

1.1 课程简介

1.2 封闭经济与开放经济

open economics macroeconomic = international finance

	microeconomics	closed macroeconomics	open macroeconomics
Price	individual goods	price level/interest rate
Quantity	individual goods(goods & services)

$$Y = C + I + G + EX - IM$$

where $EX - IM = CA: current account$

$$Savings = Investment + CA$$

1.2.1 Four Topics

3. Trade balance
4. money and price level

1.3 开放经济下的国民收入核算

1.3.1 NIA & BOP

• NIA : national income accounting
• BOP: balance of payments accounting

1.3.2 Identity & Equation

$$Y = C + I + G + CA(opt) $$

identity: unconditional holds equation: conditional holds

Y : GDP,GNP,NI etc when it comes to open economics:

$$Y = GNP = Gross\ National\ Production$$

• final production given a period
• flow variance

1.3.2.1 Difference between GDP, GNP, NI

GNP = GDP + the value created by China’s factors of production in foreign countries – the value created by foreign counties’ factors of production in China

1.3.3 Consumption

• SOE: state of enterprises -> private sector

1.3.4 Investment

• SOE

IMF predicts the economics growth rate based on investment.

1.3.5 Government Purchase

• Transfer: -> single direction
• Exchange: <-> double directions Government Transfer counted into C not G. e.g. minimum living allowrance or poverty subsidies.

2 第二章：国际收支平衡

2.1 记账原则

2.1.1 Current Account Balance

$$
Y = C + I + G + CA

$$

• foreign indebtness
• international trade (*)
• savings

2.1.2 Current accouting(CA) and foreign indebtness

If CA < 0 then

• net foreign debt $\uparrow$
• net foreign wealth $\downarrow$

Cause CA is a Flow Variable and debt is a Stock Variable.

2.1.3 Current account and Intemporal trade

CA deficit: import present consumption and export future consumption.

2.1.4 Current account and Saving

$$
Y = C + I + G + CA

$$

$$
I + CA = Y - C - G

$$

$$
S = I + CA

$$

CA can be positive or negative.

• GBD: Government budget deficit $GBD = G - T$

If CA < 0 and T - G < 0

$$
Y = C + I + G + CA \to S = Y - C - G = (Y-T-C) + (T-G) = S_p + S_g = S_p - GBD = I + CA

$$

$$
CA = S_p - GBD - I

$$

2.2 国际收支平衡表分析

2.2.1 Balance of Payment Account

BOP :

1. Current Account
2. Capital Account
3. Fanancial Account
   2 & 3 are combined in China.

1. Definition

• KOM: Balance of Payment accounts is a detailed record of the composition of the current account balance and of the many transactions that finance it.
• IMF: BOP is a statistical statement that summarizes economic transactions between residents and non- residents during a period.

2. Territorial enclares 领土飞地

• Consulate / Millitray Base

2.2.2 Resident

Residents: Residents of a state refer to the institutional units that have the center of predominant economic interest within the economic territory of the state.

• “gift” between consulate with resident is included transaction
• the cross-border branches/ subsidiary are residents of ___(Country Located)
• International Student are original resident (original coutry’s Import> BOP)
• International Organization excluded from any countries

2.2.3 Economic Transaction

• Exchange
• Transfer $\to$ uniliteral transfer
• Migration $\to$ impact residents
• Transaction by Inferrence $\to$ all economic behaivors should be recorded
• Reclassification of claims and debts

Double-entry accounting

Debit(-)	Credit(+)
an increase in assets $\uparrow$	assets$\downarrow$
decrease in liabilities$\downarrow$	liabilities $\uparrow$
import	export

Uniliteral Transfer

debit: unilitral transfer -

credit: real stuff +
Current Account

Financial Account

• Assets(Assets Held Aboard)
  • increase -
• Liability(Foreign Assets Held in Home Country)
  • increase +

Official Reserve

Official reserve is the total of a nation’s holdings of foreign currency reserves, gold reserves, special drawing rights, IMF reserve position and other reserve assets.

• Gold Reserve
• Special Drawing Right(SDR) 特别提款权
  • Dollars
  • GBD
  • Japanese Yunn
• IMF Reserve Position
  

Why a country needs hold official reserves?

Firstly, the official reserves a country holds should satisfy its need of trade.

Secondly, the official reserves a country holds should ensure that this country has certain capability to intervene in the foreign exchange market.

Thirdly, the official reserves a country holds needs to ensure that this country could import some critical goods or resources when this country is in times of crisis.

Fourthly, the country as a whole must have some debts and official reserves are something like collaterals.

2.3 国际收支不平衡原因和影响

2.3.1 Table of BOP

• Current Account
• Capital & Fanancial Account
  • Non-reserve account(KA)
  • Official-reserve account(OR)

$$ CA + KA + OR \equiv 0$$

$”BOP” \equiv CA + KA \equiv -OR$

2.4 总结 Summarization

• NIA
• BOP
• CA
• E

2.4.1 CA

• foreign indebtnees
• intertemporal trade
• unilateral transfer

2.4.2 BOP

• Residents
  • economics territory
  • center of predominant economic interest
• Economic Transaction
  • Exchange
  • Transfer
  • Migration
  • Inference
  • Reclassification

2.4.3 Financial Account

• OR
  • Forex
  • Gold
  • SDR
  • IMF reserve position
• Capital & Financial Account
  • KA
  • OR

$$CA + KA + OR \equiv 0$$

2.4.4 Net errors & Omission(Statistic Discrepaney/ Statistic errors)

• False Statement
• Money Laundry
• Capital Flight

3 第三章：汇率 Exchange Rate

3.1 外汇市场和汇率基础 The Foreign Exchange Market

major participant:

• central bank
• commercial bank
• nonbank financial institude
• corporation

3.2 购买力平价理论

3.3 利率平价理论

3.4 汇率的黏性价格和弹性价格货币分析法

第四章：国际收支理论

乘数论

弹性论

吸收论

第五章：开放经济下短期宏观经济

DD-AA曲线

财政政策和货币政策变动

货币三重困境

固定汇率和外汇干预