Reserve Assets For Financing And Regulating Payment Imbalances

857 words - 4 pages


Reserve assets are instruments available with government authorities for financing or regulating payment imbalances, it comprises of monetary gold, special drawing rights (SDRs) and foreign exchange. Central bank and treasuries use this instrument in financing the deficit. The reserves are also the balancing figure of the balance of payment account. If sufficient reserves are not available, a country needs to borrow money from institutions like the World Bank and International Monetary Fund (IMF).


Most of the items of the Current account are items of normal course, i.e, they are not deliberately planned by the government, such as goods and services imported or exported, donations given or taken, these are known as autonomous transaction. These transactions are undertaken mainly from a profit motive. If the balance of payment account does not balance through autonomous transaction capital movement takes place for achieving equilibrium. In accommodating transactions, government may borrow money or attract foreign investment, or lend and invest money in foreign countries such transactions are regarded as accommodating transaction. Thus, accommodating transactions can be regarded as transactions which are deliberately taken to balance the balance of payment account. Thus, we can conclude that the balance of payment account always balances or needs to be balanced, either by autonomous transaction or accommodating transaction


When the credit is equal to debit in the balance of payment account it is known as equilibrium. Even when all transactions are recorded in the balance of payment account, very often either credit exceeds the debit or debit is more than credit. This causes an imbalance, such imbalance is known as disequilibrium. If the imports are more and exports are less, it is unfavorable for a country and is known as a deficit in balance of payment, whereas if exports are more and imports are less it is favorable and known as surplus. When there is a surplus it can be invested in foreign securities, but when there is a deficit, it is necessary to take necessary steps to rectify the error


There are many reasons which cause disequilibrium such as import of essential materials, natural calamities, low rate of savings, no export potentials and protectionist trade policies. Due to all these the imports in a country are high and exports are less which causes a deficit in the balance of payment account and thus needs to be balanced with a surplus in its Capital account. There are various types of...

Find Another Essay On Reserve Assets for Financing and Regulating Payment Imbalances

What are the advantages and disadvantages for American Semiconductor to forgo their debt financing and take on equity financing?

772 words - 3 pages analyzed. Therefore, the business decided to relinquish their debt financing and acquire equity financing; a decision that is not advantageous for a privately owned organization unless the owner wishes to give up total control of the business.Currency is the necessary means for every person to achieve something new. To begin business, money is required. Financial support is paramount for all types of company expenses such as rent, employee

The strategic analysis of EasyJet and Easy Group --the analysis of organisational assets and Growth-share Matrix analysis for the Easy Group

3754 words - 15 pages second one is by constructing a Growth-share Matrix for the Easy Group to better understand the balance portfolios of its different Easy companies in it and then the core competence of Easy group will be discussed in detailed.Part One1. The overview of easyJet's assets:1.1 Physical assetseasyJet is based at easyLand, a bright orange building adjacent to the main taxiway at Luton Airport. In an industry where corporate HQs are generally considered

Australia's Balance of Payments

1059 words - 4 pages of complex financial assets that have become increasingly significant in recent years4.other investment- residual category that captures transactions not classified as direct investment, portfolio investment or reserve assets5.reserve assets- refer to those foreign financial assets that are available to and controlled by the central authorities for financing or regulating payment imbalances-balance on capital and financial account: determined by

The Negative Relationship Between the Debt Ratio and Performance of Firms in China

1674 words - 7 pages assets that are not enough to pay debt, the country always tend to adopt administrative intervention to avoid the bankruptcy of firms. Since the country always take others factors such as employment into consider. For firms can continued to operate, they must financing. And investors are not willing to invest in losing enterprises. It is the only way that the country becomes the guarantor of firms borrowing the money from the banks. Moreover

The Federal Reserve

2256 words - 10 pages amounts of assets and capital (Meek, Morton, and Schug 480-81). Furthermore, the Federal Reserve provides electronic payment methods for the banking industry. Funds transfers are done through Fedwire®, usually from one bank to another bank by request of a customer. These transfers tend to be for large quantities of money; thus, the Fed is connecting notable monetary transactions to government transactions to federal agencies that can adequately

Gap Analysis: Lester Electronics

3252 words - 13 pages accounting methods and tax structure. Preferred stock acts like debt; however, unpaid dividends are not debts of the firm. Preferred stock has a preference over common stock in that "it has preference over common stock in the payment of dividends and in the assets of the corporation in the event of bankruptcy" (Ross, et. al., 2004, p. 392). LEI can consider issuing corporate bonds that expire in 10 years or less. Bonds create liability for LEI if the

Money and Monetary Policy

1587 words - 6 pages exerts regulatory control over banks. Monetary policy can be implemented by changing the proportion of total assets that banks must hold in reserve. Banks only maintain a small portion of their assets as cash available for immediate withdrawal; the rest is invested in illiquid assets like mortages and loans. By changing the proportion of total assets to be held as liquid cash, the Federal Reserve changes the availablilty of loanable funds. This

Federal Reserve System in Preventing a Contagious Loss of Confidence

586 words - 3 pages Federal Reserve System in Preventing a Contagious Loss of Confidence Maintaining financial stability is an essential undertaking for ensuring country’s economic developing. Financial stability determines both local and foreign investments into the economy. A country that experiences fluctuations in factors that affect the stability of its currency is likely to have low levels of investments. The American Federal Reserve System (FRS) serves an

What´s The Federal Reserve System

1891 words - 8 pages Federal Reserve Banks. Each of the 12 banks covers a region on the United States where they are in charge of implementing the decision of the Board. The policies put in place by the Board of governors and enforced by the Federal Reserve banks are done so for the benefit of the economy as a whole. When working with financial policies and adjustments their main goals are to maintain a stable economy characterized by high employment and production

Financial Accounting

1319 words - 5 pages business invests in assets like inventory or equipment, payment is made at time of purchase or the purchase is on credit, with payment due some time later. If assets are bought for cash, the balance sheet will report the asset purchased and show cash lower by the purchase price. If the item is purchased on credit, the balance sheet will report the asset purchased and a liability will have increased by the amount of credit

What are the prime sources of Working Capital Financing?

610 words - 3 pages control on credit function of a company, factoring helps a lot. • Installment Credit: It is a special kind of commercial financing source to pay for services or goods over a certain time by the payment of principal and interest in usual expenditures. It helps the company in being productive in a scarcity period. • Invoice Discounting: This is an instance of asset supported finance and it assists a company to release money engaged in an invoice. It

Similar Essays

Accounting And Financing For Managers Essay

6984 words - 28 pages Greenwich School of ManagementExecutive MBAModule: Accounting and Financing For ManagersTutor:"A Report Evaluating Financial Information Pertaining to West Kent NHS Health & Social Care Trust's 2004/5 Accounts"Student Name: Graham BlackmanStudent No: HSK008PESubmission date: 9th March 2006Word Count: 4,83962%ContentsPage No.1.Introduction32.Background Information on Trust and Author33.Purpose of Accounting Standards44.Statement of the Chief

Impacting Laws, Regulations And Contractual Obligations For Critical Information Assets

1253 words - 5 pages Two identified critical assets include the social security number and the credit card. The countermeasure for both the assets will be analyzed from companies and customers point of view in this paper by exploring impacting laws, regulations and contractual obligations relative to the same. Impacting laws , regulations and contractual obligations for SSN • Privacy ACT 1974 • SSN regulations governing data and security • Internet privacy

Records Are Valuable Resource And Assets For Organizations

2119 words - 9 pages current business, to enable decisions to be made and actions taken. Records provide access to standards and policies, and evidence of what was done or decided in the past. They enable organizations to protector dissimilar to scam and to protect their rights and assets. Secondly, organizations use records to support accountability, when they need to prove that have met their pressures or complied with best practice or established policies

Accounting For Transfers And Servicing For Financial Assets And Extinguishments Of Liabilities

1551 words - 6 pages the cost of these loans, the sponsor’s assets are not generally totally shielded from SPE default litigation. A synthetic lease is financing structured to be treated as a lease for accounting purposes and a loan for tax purposes. The structure is used by corporations that are seeking off balance sheet financial reporting of their asset based financing, and that can efficiently use the tax benefits of owning the financed