thailand’s international transactions Thailand\'s International Transactions (in
ID: 1139145 • Letter: T
Question
thailand’s international transactions Thailand's International Transactions (in millions of US dollars) Exports of autos Exports of computer components Purchase of insurance from Lloyds of London Sale of Thai airlines tickets to foreigners Net new purchases of US treasuries Interest flows from US Treasury bills Foreign Direct Investment by Japanese 200 300 50 50 250 100 Corporations in Thailand Repatriation of profits by Japanese corporations Thai Central Bank's purchases of US dollars Imports of Bocing aircraft by Thai Airlines Imports of food 50 25 125 100 150 Calculate each of the following: a. i. Trade balance ii. Current account balance ii. Financial account balance iv. Capital account balance v. Balance of payments vi. Official Reserves Transactions b. From the current account situation, can you infer whether the Thai baht is overvalued or undervalued, relative to its market equilibrium? c. Based on your calculations in part a., what changes are implied in i. Thailand's international investment position. ii. Foreign exchange reserves of the Thai Central Bank.Explanation / Answer
Q .a.
(i)trade balance=Exports-imports
=(1+2+4)-(3+10+11)=550-300=250
II) Current account balance= Trade balance+ transfer payments=250+0+250
III) Financial account balance=it shows Thailand’s owned asset abroad and foreign owned assets in the Thailand.
=item5+item6+item9=475
Iv) Capital account balance= net value of balance of short term and long term direct and portfolio investments.
=5+6+7+9=525
v)BOP= sum of the country’s exports and imports=550+(-300)=250
vi) Official reserve transactions=8+9=150
b. Although the trade balance of the BOP is surplus as there is export is greater than the imports. Thai baht is overvalued than the other currencies as it is dominating the market in terms of exporting more to the international market. The thai baht will be appreciated compares to those currencies in which it is trading.
C. Changes in Thai investment positions
i) As the BOP of the Thailand is surplus, more foreign investors will be attracted to invest in the economy due to the advantages of superior BOP position. There will be less chance of devaluation of foreign currency as it will appreciate in the international foreign exchange market.
ii) As the item number 6,8 and 9 constitutes the foreign exchange reserves of the Thai central bank ,this number implies the macro economic variables are in control in the economy. It has 250 million US$ as foreign exchange reserve, it can control its currency if the latter faces any kind of instability in the foreign exchange market.
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