BALANCE OF PAYMENTS - Speculation? (1 Viewer)

[shsshs]

Hi, I learnt that speculation take up a HUGE amount of daily forex transactions (something lyk 80-90%?)

Where does this go on the Balance of Payments? Is it included?

If it's not then how can the BOP = 0???

please helppp

 

[Rafy]

Speculation is one of the reasons for currency transactions. They are still an investment and are part of the Capital/Financial Account.
i.e all forex transactions are included in the BOP.

 

[insert-username]

Note too that there isn't a huge 300 billion lump on the balance of payments because the balance records net figures - i.e. the deficits or surpluses in the categories, and not the actual inflows and outflows. There's a lot of speculative funds going in and coming out of Australia, so the net figure (inflows minus outflows) isn't as monstrous as you'd expect. The balances sums to zero because it only looks at these net figures and not the total amount of dollars flying around Australia and overseas.


I_F

 

[Sparcod]

How is speculation (buying/selling foreign currency) recorded on BOP?
Give an example? (current transfers??)

 

[shsshs]

see, i can understand speculation if its lyk .. sahres and things.. that goes under portfolio investment in the financial account.

but what if its just somebody going to TRAVELEX buying AUD. hoping itll go up later.

i dont c where that would go

 

[Rafy]

'Other investments' category of the Financial account

 

[insert-username]

Currency speculation is recorded under "Other Investment" on the Financial account. Australians speculating by buying foreign currencies is a debit (money goes out because the currency is not used for trade, but held for short-term gains), and foreigners buying $AUD is a credit (money comes in).


I_F

 

[edwardpham_2000]

how does the RBA or whoever recording the BOP, know what the currency exchanges for?

how do they know if the currency exchange is for investment, imports, tranfer payments etc. purposes. Since they dont ask you for a purpose when you are exchanging

 

[gnrlies]

you are all incorrect (sorry to anyone who is correct that I didn;t happen to read - as I only skimmed past a few posts).

it is true that currency speculation makes up a large portion of currency transactions.

BUT this in itself is not directly evident on the BOP. Just remember what the balance of payments measures. Its a "Flow" measure. It only measures the net effect over a period of time.

It doesn't measure each individual transaction as it stands in forex markets.

It only measures the net effect after each quarter.

So for example 90% of currency transactions could have been speculative, but thats irrelevant because they get bought and resold before its time for the next BOP figures.

Essentially all forex speculators do is buy and sell currencies on a short term basis, and their net effect is usually zero (and its other factors which create a net effect on the BOP)