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¿What is the foreign exchange balance?
The foreign exchange balance is an instrument which describes the external sector in the short term analysis used frequently in Colombia due to the frequency and promptness with which it is published, and to the close relationship between its records and monetary accounts. Thus, the foreign exchange balance can be defined as the record of the Banco de la República’s transactions with foreign reserves, and other short and medium term external assets and liabilities
In economic systems in which there is a certain degree of centralization in the management of the foreign exchange operation, it is possible to issue at the appropriate time a foreign exchange balance. This allows the permenant availability of indicators which decribe in an approximate way the global situation of country’s foreign sector.
Until 1990, the foreign exchange regime in Colombia was characterized by the centralization and control of all foreign exchange operations by Banco de la República. In 1991, as part of the modernization and internationalization of the economy, the regime was provided with ample flexibility. One of the important elements in the new exchange regime has been the decentralization of the transactions with foreign currency, the responsability of which has been passed on to the hands of authorized intermediaries: banks and financial corporations. These institutions must promptly provide Banco de la República with the corresponding information in order to issue the foreign exchange balance.
Within the new decentralized framework, Colombian citizens are now allowed to open a current account abroad. These accounts can be used for transactions pertaining to the foreign exchange market, in which case they must be registered with Banco de la República under the form of compensation current accounts. Every month a report is issued which records the transactions of these accounts. This allows a follow up of the flow of foreign currency related to external transactions, but which do not enter the country .
Even though the foreign exchange balance has lost coverage due to the deregulation of the exchange system, it continues to be an important record of the flow of currencies which enter and leave the country. In this manner, the exchange balance and the compensation accounts become complementary information regarding the external sector, and useful for the compilation of the balance of payments.
Even though the balance of payments, the foreign exchange balance and the compensation accounts have similar structures, they differ mainly in terms of coverage and at the timing of the registration of operations. Indeed, while the balance of payments includes all the transactions between residents and nonresidents, and in general those operations which represent variations in the international assets and liabilities of an economy during a given period of time, the foreign exchange balance and the compensation accounts include only those operations which give rise to the flow of currencies and which are canalized, respectively, through local foreign exhanage market intermedaries and current accounts abroad.
¿What is the balance of payments?
The balance of payments is a countable record of all the economical transactions of a country’s residents with the rest of the world during a given period of time, generally a year. In other words, it shows total payments made abroad, and the total amount received from abroad. It records both the flow of real resources (goods and services) and the flow of financial resources (the movement of capitals).
The balance of payments is made up of two main entries: the current account and the capital account.
The current account summarizes all the transactions for the exportation and importation of good and services, that is, all visible and invisible trade. The capital account collects all those transactions not included in the current account, the most important being the transfer of capitals and the sales and purchases of gold and foreign currency.
Given that the balance of payment is subject to the doble entry system like any countable register, it must always be in equilibrium, or with zero balance. Nevertheless, this does not mean that the capital or current account must necessarily be in equilibrium.
There is no reason why the current account should always be automatically balanced, yet any deficit or surplus in the current account must be compensated with a surplus or defict in the capital account. For example, if imports exceed exports, the differance in value must be financed with overseas loans, international reserves or by selling gold, and these operations will be reflected in the capital account.
One must distinguish between the movement of autonomous capitals and the movement of compensatory capitals. The former correspond to all those capital movements that take place as a response to commercial or financial incentives, or to political considerations which are independant of the balance of payments, that is to cover the diferance between autonomous debits and credits, representing the "adjustment" and "drawing" of the balance of payments, which reflect their global balance but with opposite signs. Therefore, when one speaks of a deficit or surplus in the balance of payments, no reference is made to an accountable balance but to the balance of one of its accounts in particular, which is the account of compensatory capital, and which is none other than the diferance between the balance in the current account and the balance in the movement of autonomous capitals adjusted for certain errors and omissions. Therefore, the fact that there is a deficit in the balance of payments indicates that the country’s international reserves have diminished by an amount exactly equal to the corresponding deficit, whereas the existence of a surplus indicates that reserves have increased by the same amount as this surplus.
¿What is a certificate of deposit (CD)?
These are certificates of deposits which represent obligations for the institutions that issue them. Commercial banks and financial corporations are authorized to recieve this type of deposits.
They are transferd through endorsement and a tranfer letter by the depositor. They can be nominative or issued to order.
¿What is a fiscal deficit?
It is the opposite situation to a fiscal surplus, which expresses a negative diference between public income and expenditure, according to the budget usually managed by the government.
¿What is unemployment?
The unemployment phenomena presents itself, among other reasons, when the amount of equipment, and the financial and technical resources available to a country are insufficient to allow the employment of all the available labor force. Here it is necesary to consider that in certain regions there are production factors that are not available in others, and that in each region they are used in different proportions. Also, between one region and another the conditions of growth vary and so does the evolution of the economic machinery, and the structure of the population’s preferences. As a result of all this, the characteristics of the unemployment phenomena in a certain economy are not necessarily the same to those of another.
Even in economies where there is great mobility of the labor force, that is, where workers can easily move from one region to another, or from one firm to another, the complete elimination of unemployment is imposible. Indeed, within the present complex economic system, there is no complete and clear information regarding work opportunities, nor about the existance of people who can be contracted. For this reason, on many ocassions pauses occur in the participation of individuals in the productive process, so that temporary unemployment is generated because the job seeker, or he who offers it, is going through the phase of selecting what is most convinient to him. This temporary unemployment can become structural or permanent if, for example there are not enough qualified workers to carry out certain technical activities, or if there is no employment for certain professions or types of persons, either because they do not have adequate education and training, or because they are subject to social descrimination either for their race, sex, age, etc.
Present also within the world economic environment are cycles of greater or lower unemployment, according to the phases of economic recession or growth which every economic system faces. Finally, another cause of unemployment is the prevalance of wages which are too high with respect to the possibilities and convinience of firms.
¿What is public debt?
Public debt is government expenditure above income, or debt acquired by the state in the form of obligations.
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