International Finance related issues. The Capital Account of the balance of payments measures all international economic transactions of financial assets. It is divided into two components: + The Capital Account + The Financial Account. Capital Accounts consist of: - Direct Investment – in which the investor exerts some explicit degree of control over the assets. - Portfolio Investment – in which the investor has no control over the assets nor any participation in the management. - Other Investment – consists of various short-term and long-term trade credits, cross-border loans, currency deposits, bank deposits and other capital flows related to cross-border trade. DSR - Debt Service Ratio: The Debt Service Ratio - DSR is the percentage of a borrower's income that will be used to pay off a loan. It is one of the factors a lender will use to assess your application. Most lenders set the maximum DSR from 30% to 30%, which means that the loan repayments should not take up more than that part of your salary. This ensures that you will be able to pay off your loan comfortably, with little to no risk of defaulting or going bankrupt. The DSR may be calculated based on your monthly, weekly or fortnightly earnings.

1. The Balance of Payments II Capital Account International Finance CFVG-May 2009 Professor: M.H. Bouchet

5. US Current account deficit -7% PBI US Treasury, IMF US$ billion

6. Major net Importers of Capital Source: IMF 2007

7. Major net Exporters of Capital Source: IMF 2007

14. Table of Uses and Sources

19. Developing countries that have relied less on foreign capital have grown faster! (IMF/03-2007)

20. Where do capital flows go ?

21. Who finances whom? Current account balances of OECD (30) and EMCs (160) US$ billion Source: IIF, IMF-WEO 2009

22. EMCs shrinking current account surpluses

23. Net external capital sources for EMCs IIF/IMF US$ billion

24. Private flows & FDI are a key source of growth financing for EMCs Source: IIF-2009

25. Net Private Capital Flows to E MCs (Equity, FDI, Portfolio, Banks + non-banks) Billion of US$ Source: IIF/IMF

26. Net FDI and portfolio capital flows to EMCs US$ billion Source: IMF/IIF

30. Source: US GAO 02/2008

31. FDI Flows worldwide in % of total volume Source: CNUCED/2007 Total= $1833 billion * IDE In = $81 billion, et IDE Out= $115 billion (OCDE et BDF) France= $81 billion* (7,1% of total)

32. Total FDI inflows in US$ trillion Post-2003 bounceback has been driven by OECD markets. FDI flows to EMCs will remain buoyant in 2007-10, averaging over US$400bn per year, but growth rates will be modest as privatisation tails off and the global economy slows.

33. OECD* (65%) EMCs (35%) ASIA (50%) LATIN AMERICA (25%) GLOBAL ECONOMY EMCs LATIN AMERICA MEXICO (15%) CHILE (10%) PERU (4%) CHINA (36%) ASIA GLOBAL FDI FLOWS 2008 = $1500 billion Source: IIF, OECD/UNCTAD $92 billion * 30 countries - Mexico

35. TOP 25 Global Confidence Index AT Kearney 2007

36. Most attractive emerging markets High Risk Lows Risk

37. China: FDI Flows In billions of US$ Source: OECD

38. Financial self-sustaining process = high saving rate, stronger banking sector= < dependance on external capital flows Source: OCDE

39. FDI Flows in Vietnam (BOP source) In millions of US$, actual disbursed as of 08 Source: IMF Jan-April 09: VN attracts US$6,35 billion in registered FDI, down 17% compared to 08, mostly in services.

42. FDI in Vietnam by Sector

43. TOP 10 INVESTOR NATIONS IN VIETNAM

45. France: FDI Flows In & Out Ratio OUT/IN= 1,8 Source: FMI & OCDE 2008

46. Outsourcing and job losses in Europe Source: European Fondation for the improvement of living and working conditions/2006

47. Outsourcing and sectoral job losses in Europe Source: European Restructuring Monitor/2006

48. Offshoring and job losses in Europe

50. Gross private capital flows to LACs

53. Vietnam’s foreign exchange reserves

54. China’s rising official reserve assets US$ billion Source: IMF 2006/IIF

58. In millions of US$ Source: IIF

59. Vietnam’s errors & omissions in US$ million

60. Russia: Net Errors & Omissions US$ billion Source: IMF-IFS/IIF

61. Peru and Capital flight

63. IMF Disbursements and Repayments In SDR million Credits Repayments

64. Total IMF Credit Outstanding for all Members

65. Risk Management and BOP Analysis + Export of goods f.o.b. - Imports of goods f.o.b. = Trade balance +/- Exports/Imports of non-financial services + /- Investment income/expenditures (credit/debit) + (-) Private/Official unrequited transfers = Current account balance +/- FDI +/- Portfolio capital Flows + LT Capital Inflows - Debt Servicing Payments +/- ST Capital Flows Reserve Variation

70. Net US external investment position in US$ billion Source: IMF-2009 International assets-International Liabilities

72. The History of the U.S. Balance of Payments Stage I : The U.S. is a young debtor nation (1770-1870) -Current account deficit due to the need to import most goods and inability to produce many goods for export. -Capital account surplus due to a great deal of foreign investment in the U.S. in the areas of roads, farming, cattle ranches, railroads, and canals. Stage II : The U.S. is a mature debtor nation (1870-1920) - Current account deficit due to large investment income being paid back to foreign investors based on the investment of stage I. Merchandise account in surplus -- exports > imports. Stage III : The U.S. is a young creditor nation (1920-1945) -Huge surplus in the current account due to large volume of postwar (WWI) exports. -Capital account in deficit due to a great deal of U.S. investment in Europe for postwar reconstruction. Source: http://www.digitaleconomist.com/bop_4020.html

73. Stage IV : The U.S. is a mature creditor nation (1945-1980) -Merchandise deficit -- exports < imports but an investment income surplus with a slight net surplus overall. -Capital account is in deficit largely due to postwar (WW II) reconstruction in Europe and Japan. Stage V : (1980- ) -Large (and growing) deficit in the merchandise accounts (Trade Deficit) and slight surplus in the investment income accounts. -Large surplus in the capital account partially to finance the above merchandise deficit (foreign individuals and banks lending money to individuals in the U.S.) Additionally, since the U.S. has had a low inflation rate since 1982 and consistent economic growth , the U.S. has been a good place to invest relative to the rest of the world. However the current inflow of capital investment could eventually lead to large investment income payments in the near future. The investment income surplus may soon be eroded thus worsening the current account deficit.