Balance of payments and Exchange Rates. Balance of payments & exchange rates The balance of payments account Example of UK balance of payments The balance

Balance of payments and

Exchange Rates

Balance of payments and

Exchange Rates

Balance of payments & exchange ratesBalance of payments & exchange rates

The balance of payments account

Example of UK balance of payments


Example of UK balance of payments



The current account


The current account

UK balance of payments: 2001 (£ millions)UK balance of payments: 2001 (£ millions)






Current account balance as % ofGDP in selected countries: 1970–2003

Current account balance as % ofGDP in selected countries: 1970–2003

-5

-4

-3

-2

-1

0

1

2

3

4

5

1970 1975 1980 1985 1990 1995 2000

Cur

rent

acc

ount

bal

ance

:% o

f GD

P

UK

-5

-4

-3

-2

-1

0

1

2

3

4

5

1970 1975 1980 1985 1990 1995 2000

Cur

rent

acc

ount

bal

ance

:% o

f GD

PCurrent account balance as % of

GDP in selected countries: 1970–2003Current account balance as % of

GDP in selected countries: 1970–2003

USA

UK

-5

-4

-3

-2

-1

0

1

2

3

4

5

1970 1975 1980 1985 1990 1995 2000

Cur

rent

acc

ount

bal

ance

:% o

f GD




USA

Japan

UK

-5

-4

-3

-2

-1

0

1

2

3

4

5

1970 1975 1980 1985 1990 1995 2000

Cur

rent

acc

ount

bal

ance

:% o

f GD






The capital account


The capital account




The financial account


The financial account







The overallbalance of payments


The overallbalance of payments




Exchange ratesExchange rates

Sterling exchange rates: 1980–2003Sterling exchange rates: 1980–2003





Exchange ratesDetermination of the

exchange rate

Exchange ratesDetermination of the

exchange rate

1.00

1.20

1.40

1.60

1.80

2.00

2.20

0

$ pr

ice

of £

Q of £

Determination of the rate of exchangeDetermination of the rate of exchange

1.00

1.20

1.40

1.60

1.80

2.00

2.20

0

$ pr

ice

of £

D by USA

Q of £


1.00

1.20

1.40

1.60

1.80

2.00

2.20

0

$ pr

ice

of £

QS

S by UK

Q of £


D by USA

QD

b a

1.00

1.20

1.40

1.60

1.80

2.00

2.20

0 QS QD

d$ pr

ice

of £


S by UK

Q of £

c

D by USA


Exchange ratesChanges in theexchange rate

Exchange ratesChanges in theexchange rate

0.60

0.80

1.00

1.20

1.40

1.60

1.80

0

Floating exchange rates: movement to a new equilibriumFloating exchange rates: movement to a new equilibrium€

/ £

S1

D1

Q of £

0.60

0.80

1.00

1.20

1.40

1.60

1.80

0

€ / £

S1

D1

S2

Q of £

Floating exchange rates: movement to a new equilibriumFloating exchange rates: movement to a new equilibrium

0.60

0.80

1.00

1.20

1.40

1.60

1.80

0

€ / £

S1

D1

S2

D2

Q of £

Floating exchange rates: movement to a new equilibriumFloating exchange rates: movement to a new equilibrium


Exchange ratesSpeculation against

exchange rate movements

Exchange ratesSpeculation against

exchange rate movements

O

Exc

ha

nge

ra

te

Quantity of £s

S1

D1

er1

Stabilising speculationStabilising speculation

O

Exc

ha

nge

ra

te

Quantity of £s

er2

S2

D2

S1

D1

er1


O

Exc

ha

nge

ra

te

Quantity of £s

S3

D3

er3

er2

S2

D2

S1

D1

er1


O

Exc

ha

nge

ra

te

Quantity of £s

S1

D1

er1

Destabilising speculationDestabilising speculation

O

Exc

ha

nge

ra

te

Quantity of £s

S2

D2

er2

S1

D1

er1


O

Exc

ha

nge

ra

te

Quantity of £s

S2

D2

er2

er3

S3

D3

S1

D1

er1



Exchange ratesMovements in the sterling exchange rate over time

Exchange ratesMovements in the sterling exchange rate over time

$ / £ exchange rate and £ exchange rate index: 1976-2003$ / £ exchange rate and £ exchange rate index: 1976-2003

$ / £

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

70

80

90

100

110

120

130

140

150


$ / £

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

70

80

90

100

110

120

130

140

150


$ / £Index

1990=100

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

70

80

90

100

110

120

130

140

150


$ / £Index

1990=100

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

70

80

90

100

110

120

130

140

150


Exchange ratesMovements in the

dollar/euro exchange rate from 1999 to 2003

Exchange ratesMovements in the

dollar/euro exchange rate from 1999 to 2003

Fluctuations between the euro and the dollarFluctuations between the euro and the dollar


US interest rate


US interest rate

ECBinterest rate


$ / €US interest

rate

ECBinterest rate

$ / €

Documents

Balance of payments and Exchange Rates. Balance of payments & exchange rates The balance of payments account Example of UK balance of payments The balance