balance of payment

Examples of balance of payment in the following topics:

• Financing Balance-of-Payments Deficits and Surpluses

  • Strategy 1: If a country has a balance-of-payments deficit, it has an excess supply of currency on the foreign exchange markets.
  • On the other hand, a balance-of-payment surplus does the exact opposite.
  • If a country experiences a balance-of-payment surplus, then it allows its currency to appreciate.
  • For instance, a country is experiencing a balance-of-payments deficit.
  • Consequently, the financial account falls until the balance-of-payments surplus approaches zero.

• Chapter Questions

  • Please define the following terms: current account, trade balance, financial account, and official settlement balance.
  • Why does a statistical discrepancy occur in the balance-of-payments accounts?
  • If a country has a fixed rate regime and experiences a balance-of-payments deficit, please explain how the country must maintain this exchange rate.
  • If a country has a managed float exchange rate regime and experiences a balance-of-payments surplus, please explain how the country must maintain this exchange rate.
  • In your answer, include the actions of the central bank.

• Balance of Payments

  • Balance of payments records all transactions between the households, businesses, and government of one country to the rest of the world.
  • We show the 2011 balance of payments for the United States in Table 1.
  • Balance of payments uses the accounting double entry system, where total debits equal total credits.
  • Balance of Payments (BOP) = current account + financial account = 0 (1)
  • If a country's balance of payments equals zero, then that country's exchange rate may not change.

• Components of the Cash Budget

  • The cash budget includes the beginning balance, detail on payments and receipts, and an ending balance.
  • It is one of a series of accounting transactions dealing with the billing of a customer for goods and services that the customer has ordered.
  • Dividends received: Dividends are payments made by a corporation to its shareholder members.
  • It is the portion of corporate profits paid out to stockholders.
  • Other payment - Which includes Advertising, Selling expenses, Administrative expense, Insurance expenses, Rent expenses, etc.

• Loans and Loan Amortization

  • When paying off a debt, a portion of each payment is for interest while the remaining amount is applied towards the principal balance and amortized.
  • Since interest accrues on both the principal and previously accrued interest, paying off a loan can seem like a dance between paying off the principal fast enough to reduce the amount of interest without having huge payments.
  • The process of figuring out how much to pay each month is called "amortization. " Amortization refers to the process of paying off a debt (often from a loan or mortgage) over time through regular payments.
  • A portion of each payment is for interest while the remaining amount is applied towards the principal balance.
  • The percentage of interest versus principal in each payment is determined in an amortization schedule .These schedules makes it easier for the person who has to repay the loan, s/he can calculate and work accordingly.

• Chapter Questions

  • Compute a business's cash balance at the end of the year if the company starts with a cash balance of $10,000, paid salaries of $70,000, received $100,000 in cash sales from customers and $30,000 for accounts receivable, and paid taxes of $10,000.
  • How much will your balance grow in 50 years?
  • Compute the present value if a friend repays a loan over 3 months with an annual interest rate of 12% and the monthly payment of $100.First payment begins at the end of the first month.
  • You have save an ordinary annuity with a balance of $50,000.Calculate your annual withdrawal payments if the annuity earns a 5% APR which you withdraw over 15 years.
  • Compute the monthly payment for a $500,000 mortgage for 30 years with a 7% APR.

• Annuities and Mortgages

  • We compute an annual withdrawal payment of $7,397.46 in Equation 20.
  • Thus, you subtract $7,394 from the loan balance.
  • First payment has the highest interest while the lowest principal applied to the loan balance.
  • We calculated your monthly payment of $899.33 in Equation 25.
  • For the last payment, the person would pay the remaining balance, which could be large.

• Managing Collections

  • A company must balance its need for quick cash collections with the needs and desires of its customers.
  • A company must balance this need for quick cash collections with the needs and desires of its customers.
  • An example of a collection letter follows:
  • Our records indicate that a balance of $ 4,650.30 is over 90 days past due.
  • A firm should always require deposits from customers that have a history of making late payments.

• Defining the Balance Sheet

  • That specific moment is the close of business on the date of the balance sheet.
  • The balance sheet is a formal document that follows a standard accounting format showing the same categories of assets and liabilities regardless of the size or nature of the business.
  • Similarly, liabilities are listed in the order of their priority for payment.
  • Each of the three segments on the balance sheet will have many accounts within it that document the value of each.
  • State the purpose of the balance sheet and recognize what accounts appear on the balance sheet

• Terms of Trade

  • Terms of trade credit include the amount of time allowable for payment to be received, including any potential discounts.
  • An example of a common payment term is Net 30, which means that payment is due at the end of 30 days from the date the invoice is issued.
  • Other common payment terms include Net 45, Net 60 and 30 days end of month.
  • Net 60 is less used because of its longer payment terms.
  • Under this agreement, they are apparently taking a loss or disadvantageous position in this web of trade credit balances.