Swiss Balance Of Payment - Review Analysis
MBA 614 International Finance – 2014 Fall Semester
Virginia International University
Dr. Zelalem Chala
SWISS BALANCE OF PAYMENT
Current Account and Capital Account (2003-2012)
This review will analyze Balance of Payment (BOP) of Switzerland for past 10 years. Switzerland is ranked 1st for a “free” economic country which has high rate of Trade Freedom, Investment Freedom and Financial Freedom in European region countries. And it is economy and foreign trade is continuously growing for a past decades. Therefore, I assume that Swiss BOP is the interesting issue to be analyzed. Firstly, this review will provide information about current account, one of the main parts of BOP, including how its trade in goods and services has evolved over time. It also will include Swiss foreign trade competitiveness in the world. Secondly, it will examine relationship between the Swiss net foreign asset position and its International Investment income account. Thirdly, It will discuss about whether there is current account surplus or deficit.
The balance of payments contains different accounts. For each account the balance between inflows and outflows is measured. The components of the current account are accounts such as goods (the trade balance for goods) and services (trade balance for services), but also incomes from investments, labor and transfer payments of residents. Swiss companies are extremely competitive in world markets. Swiss foreign trade balance has been continuously increased over last 10 years. Figure1. Swiss Foreign Trade in CHF million
Switzerland's main trading partners are European Union members. And the biggest partner is Germany. Currently, 59.7% of exports went to EU countries, and 78% of the imports came from EU states. Swiss economic policy has always been based on free trade, with low import duties and virtually no import quotas. Figure 2. Swiss Current account (2003-2012)
As shown in Figure 2, Service account and Investment Income account are major determining component of Swiss current account rather than Goods account and Current transfers. We can see there is a significant drop for the Investment income account, which impacted by financial crisis in 2008-2009. The heavy losses by banks’ foreign subsidiaries were the main reason for this decline. This led to a sharp decline in the current account surplus from CHF 52 billion to CHF 13 billion. This is the first time that Net Investment account was negative, but Swiss current account has been always surplus since current account were first complied (1947). For the other components, which are net goods, services and current transfer account have been amounted constantly over years and there have been no significant difference for last 10 years, Financial Crisis in 2008-2009 did not impact on the trade in Goods and Services in Switzerland.
Financial account components: Direct Investment, Portfolio Investment, Derivatives and Structured Products, Other Investment and Net Bank Lending. Net direct investments represents outflows (direct investment of Swiss multinationals > Foreign investment in Switzerland). These outflows were good for the central bank, but after financial crisis, net Direct Investment was far smaller than in 2005 or 2006. Figure 3 shows that different expansion of d Direct Investment abroad before and after the financial crisis....
References: Bekaert, G., Hodrick, R (2012). International Financial Management, 2 ed.
Prentice Hall, New york
snb.com/en. (2014). Swiss Balance of Payment (annual report). Retrieved August 15, 2013; from http://www.snb.ch/en/mmr/reference/balpay_2012/source/balpay_2012.en.pdf
snb.com/en. (2014). Swiss Balance of Payment (annual report). Retrieved August 14, 2008; from http://www.snb.ch/en/mmr/reference/balpay_2007/source/balpay_2007.en.pdf
Jordan,T. (2012) Strong Swiss franc and large current account surplus – a contradiction?
Retreived February 19, 2013 from
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