II.1 Factors and circumstances affecting the International Investment Position of Eden
1. farthing/crown at the end of the previous period 2.87
2. farthing/crown at the end of the reference period 3.15
3. all assets are denominated in crowns, all liabilities in farthings
4. on the asset side there are only bonds, the price change of which (in farthing) is 6 per cent 5. The prices of shares in portfolio investment assets are unchanged.
6. on the liability side, the ratio of shares in the portfolio 90 per cent
7. change of the share price compared to the end of the previous month −12 per cent 8. the price of the bond on the liability side did not change
9. write-off of doubtful loan receivables (million crown) 100
10. the level of opening positions is optional
II.2 International Investment Position of Eden
1. Direct investment 2,587 1,620 333 0 0 1,953 4,540
2. Portfolio investment 6,987 936 691 517 0 2,143 9,130
3. Other investment 582 157 1,263 0 −315 1,106 1,688
4. International reserves 9,854 4,600 1,194 0 0 5,794 15,648
Assets total 20,010 7,313 3,481 517 −315 10,996 31,006
LIABILITIES
1. Direct investment 4,598 5,791 0 0 0 5,791 10,389
2. Portfolio investment 3,598 401 0 −389 0 12 3,610
3. Other investment 1,458 3,900 337 0 0 4,237 5,695
Liabilities total 9,654 10,092 337 −389 0 10,041 19,695
NET ASSETS
1. Direct investment −2,011 −4,171 333 0 0 −3,838 −5,849
2. Portfolio investment 3,389 535 691 905 0 2,131 5,520
3. Other investment −876 −3,743 926 0 −315 −3,132 −4,008
4. International reserves 9,854 4,600 1,194 0 0 5,794 15,648
NET ASSETS TOTAL 10,356 −2,779 3,144 905 −315 955 11,311
Note: The level of opening positions is optional.
Notes to Table II.2
The international investment position presents, starting from the opening level and through the recognition of changes during the period, the closing level of the financial claims on and liabilities to the rest of the world expressed in the currency of aggregation. The lines of the table show the standard functional categories of the balance of payments while the columns contain the changes in the financial positions (stocks) during the period.
Stocks of financial claims and liabilities denominated in foreign currencies are converted to the currency of aggregation at the exchange rate prevailing at the end of the reference period. The opening stock of a period is identical with the closing stock of the preceding period. Thus, the exchange rate prevailing at the end of the previous period is used to calculate the opening stock level. (As in the example the value of the opening positions is optional, this is irrelevant for the definition of their value.) The closing position is identical with the closing position of the preceding period (=opening position of the current period) plus the changes during the current period.
The balance of the transactions is identical with the balances in the financial account of the balance of payments but its sign depends on its contribution to the stock change: it is “+” if it increases the stock and “−” if it decreases it. In the case of assets, this is contrary to the convention on signs applicable to the balance of payments, where any increase due to transactions is recorded on the expenditure side (debit item). Thus in the case of assets, the balance disclosed in the financial account must be multiplied by (−1).
Considering that financial assets and liabilities arising from other investment relate to instruments denominated in crowns, their value expressed in the currency of aggregation is influenced by the crown/farthing exchange rate in the period concerned. This depends on two components. The value of positions converted to the currency of aggregation is affected on the one hand by the relative change of exchange rates at the end of the period (if no change occurs during the period to alter the values denominated in the original currency, the value expressed in the currency of aggregation changes if the period-end exchange rate is different from the one prevailing at the end of the previous period), and on the other hand, by the difference between the exchange rate applicable to changes during the period and the exchange rate at the end of the period (for instance, transactions are aggregated in the balance of payments at the transaction exchange rate or some average exchange rate, thus their value at the period-end exchange rate, which is used for their recognition in the IIP, will differ by the difference between the transaction exchange rate or average exchange rate and the period-end exchange rate). Technically, these are called exchange rate changes relating to stocks and to flows, respectively. Essentially, different exchange rates are used for the conversion of flows recorded in the currency of denomination, moreover, period-end exchange rates also tend to change as in relative terms. Therefore, in order to satisfy the requirement of the reconciliation between opening stock, closing stock and changes in the period, the effects of exchange rate fluctuations must be taken into account. Clearly, for stocks of financial assets where the currency of denomination and aggregation is identical, there is no change arising from exchange rate fluctuations (in the example, the direct investments and portfolio investments on the liability side).
The price change of market instruments (bond price, share price) has a similar effect on the value of stocks as the revaluation resulting from exchange rate fluctuations. If the market price of a financial asset changes, the value of the net financial worth to take into account also changes. In the case of assets denominated in foreign currencies this is combined with the effects of exchange rate fluctuations (in the example, see the change in the price of the bond denominated in crowns among receivables) but such a revaluation also occurs in the case of stocks denominated in the currency of aggregation (see the portfolio shares on the liability side in the example).
Of the elements of the change in net worth, the other changes in stock category must be used if the creditor writes off its claim against the debtor by a unilateral decision. That is, it is not debt forgiveness occurring as a result of a bilateral agreement between the borrower and creditor (see transaction 14 in the example), which is a transaction to be recorded in the balance of payments, but a unilateral decision by the creditor. The write-off of some of the claim reduces the value of the claims recorded. This decline is reflected in the other change in stock column. As in the example the crown-denominated claim is written off at the end of the period, no specific exchange rate difference needs to be recognised for this change.
2012 Print: D-Plus
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