Challenges of International Finance

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The balance of payments (BOP) can be defined as the statistical record of a country’s international transactions over a certain period of time presented in the form of double-entry bookkeeping.

The BOP is those that record all transactions between the residents of a country and residents of all foreign nations. It is composed of the following:

• The current account
• The capital account
• The official reserves account

The United States has experienced continuous current account deficits since the early 1980s.

Discuss the following questions:

• What do you think are the main causes for the deficits? Discuss the consequences of continuous U.S. current account deficits.
• How can a country run an overall BOP deficit or surplus?
• In contrast to the United States, Japan has realized continuous current account surpluses. What could be the main causes for these surpluses? Do you believe that it desirable to have continuous current account surpluses? Discuss your reasons.
• What is your opinion on the following statement?
  • “Because the U.S. imports more than it exports, it is necessary for the U.S. to import capital from foreign countries to finance its current account deficits.”