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What is balance of payments?
· BoP = capital account + current account
· Capital account = exports ­ imports ­ transfers +
investment income
· Determines the exchange rate
· Based on demand and supply for your currency
· In deficit too much supply as buying too much rate
down…read more

Slide 3

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Investment income &
transfers
· Investment income
· Dividends = interest from foreign investments
· Transfers
· Foreign aid + remittances [foreign workers sending
money home to their families]…read more

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Balance of payment `statuses'
There are three: deficit, surplus, balanced
· Deficit is better for living standards
· Not sustainable ­ too much deficit devalues country's
currency
· E.g. Italy/Spain ­ used to do that to compete with other
currencies ­ can't do that now which is why they're screwed!
· Caused by deindustrialisation (also causes structural
unemployment)
· Surplus is better for employment
· Balanced is better for price stability
· OMO's ­ Open Market Operations ­ if the government is
unhappy about BoP, they pretend to be another investor
and release their foreign currency reserves.…read more

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The man who broke the Bank
of England
· George Soros
· Black Wednesday (16 September 1992) ­ made £1bn
profit; UK economy lost £3.3bn (Freedom of
Information)
· http://en.wikipedia.org/wiki/George_Soros…read more

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Monetary policy…read more

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