Introduction to Finance

balance of payments
is a record of the transactions between one country and all other 
countries over a specifi c period, such as a year. The U.S. balance of payments involves all of its 
international transactions, including foreign investment, private and government grants, U.S. 
balance of payments 
record of the 
transactions between one country 
and all other countries over a 
specifi c period

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C H A PT E R 6 International Finance and Trade
military spending overseas, and many other items besides the buying and selling of goods and 
services. The most important component of the balance of payments is the 
balance of trade
, 
which is the net balance of exports and imports of goods and services. A more narrow view 
considers only the import and export of goods and is termed the 
merchandise trade balance
.
 
The merchandise trade balance was positive for the U.S. during the 1950s and 1960s. How-
ever, imports of goods have consistently exceeded exports since the latter part of the 1970s.
The following are exports, imports, and balance on goods amounts in billions of dollars 
for selected years at the beginning of each decade starting with 1980 and ending with 2010, 
plus data for 2014.
Year
Exports
Imports
Balance on Goods
1980
$224.3
–$249.8
–$25.5
1990
387.4
–498.4
–111.0
2000
772.0
–1,224.4
–452.4
2010
1,288.7
–1,934.6
–645.9
2014
1,632.6
2,374.1
–741.5
Source: 
Economic Report of the President 
and http://www.bea.gov.
It can be seen that exports of goods increased nearly six times, from $224.3 billion in 
1980 to $1,288.7 billion in 2010. However, over the same period, imports of goods increased 
nearly eight times, from $249.8 billion in 1980 to $1,934.6 billion in 2010, and the balance on 
goods grew from –$25.5 billion in 1980 to –$645.9 billion in 2010. And, by 2014, the import-
ing over exporting of goods continued to grow, resulting in a net balance of –$741.5 billion. 
Factors that impact international trade balances include the exchange value of the U.S. 
dollar relative to other currencies, relative infl ation rates, and economic growth. A relatively 
stronger U.S. economy means that more will be spent on imports, while the weaker foreign 
economy means that less will be spent on U.S. exports. A relatively weaker real exchange rate, 
where the nominal exchange rate is adjusted for infl ation diff erences, makes for a weaker U.S. 
dollar, which lowers the dollar cost of U.S. goods relative to foreign goods.
Table 6.3
shows the U.S. balance of payments statement (also referred to as U.S. inter-
national transactions) for 2014. Balances are shown for the current account, capital account, 
and fi nancial account. Positive numbers refl ect infl ows of funds while negative numbers refl ect 
outfl ows of funds. The