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The System Development Life Cycle Use/Evaluation Phase

Questions & Answers about Evaluation phase - The System Development Life Cycle Use/Evaluation Phase

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- Module: Evaluation phase
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  • Jones Hanungu Munang'andu Zambia Assessing the balance To summarize, the overall balance of payments comprises the current account (merchandise and services), unilateral transfers (gifts, grants, remittances, and so on), and the capital account (long-term and short-term capital movements). If payments due in exceed those due out, a country is said to be in overall surplus; and when payments due out exceed payments due in, it is in overall deficit. The surplus or deficit must be balanced by a monetary movement in the opposite direction, and consequently the overall balance including monetary movements must always be equal. In practice, great difficulties have been found in assessing whether a country is in deficit or in surplus. It is often important to establish this with a view to possible corrective measures. The United Kingdom stresses the combined balance of current and long-term capital account—i.e., excluding short-term capital. Such a balance, however, omits short-term movements that occur in the ordinary course of business, which may be called “normal” and which ought in principle to be included. On the other hand it is not desirable to include equilibrating or disequilibrating capital movements. These occur in consequence of a deficit (or surplus), actual or anticipated. But there may be great statistical difficulty in distinguishing between the normal short-term capital flows and those that are consequential on a surplus or deficit. It has been noted that the overall balance, including monetary movements, must be equal, but it usually happens that the figures do not in fact balance. U.S. statisticians call the residual figure that has to be inserted to square the account “errors and omissions.” If the average value of this figure over a substantial period, such as 10 years—an even longer period may have to be taken if a country is in persistent surplus or deficit—has a positive or negative value of substantial amount, then it may be taken to constitute genuine items that have escaped the statistical net. These may legitimately be included in assessing whether a country is in genuine surplus or deficit and whether corrective measures are needed. The “errors and omissions” item is extremely volatile from year to year and often very large. Such movements up and down are probably caused by precautionary short-term capital movements. There have been periods when a minus item in the U.S. account was rather strikingly associated with a plus item in the U.K. account, and conversely. Accordingly, in the short term, the “errors and omissions” item should not be included in assessing whether a country is in surplus or deficit. It has been noted that the United Kingdom stresses the balance of current and long-term capital accounts (which include unilateral transfers). The U.S. position is less clear. It traditionally published two overall balance-of-payments measures: the “Liquidity Balance” and the “Official Settlements Balance.” In distinguishing between monetary and nonmonetary items, the Liquidity Balance included any increase in the holding of short-term dollar securities abroad as part of the U.S. deficit during the period; but it did not include as counterweight any increase in short-term foreign claims held by U.S. resident banks or others (apart from official holdings). Thus, in this respect the treatment was asymmetrical. The rationale for this was precautionary. The argument was that short-term dollar assets held abroad outside the central banks might at any time be sold in the market or turned in to the central banks of the respective countries and thus constitute a drain, or the threat of a drain, on U.S. reserves. On the other hand the corresponding foreign short-term assets held by U.S. resident banks or others were not readily mobilizable by U.S. authorities for making payments. Thus by this reckoning, if during a period non-central-bank foreign holdings of short-term dollar securities and resident non-central-bank U.S. holdings of short-term foreign securities went up by an equal amount, the situation would be shown as having deteriorated, since the former class (liabilities) were a threat to U.S. reserves, while the latter class (assets) could not be mobilized by U.S. authorities to meet such a threat. Thus, though the motive for this asymmetrical treatment may have been understandable, it was statistically unsatisfactory and also unsatisfactory as a guide to corrective action. This balance is thus mainly of historical interest, and it has not been commonly used since 1971. The U.S. Official Settlements Balance reckoned an increase in non-central-bank foreign holdings of short-term dollar assets as an inflow of short-term capital into the United States; similarly an increase in U.S. resident holdings of short-term foreign assets was an outflow of short-term capital. This was a logical treatment. But the balance thus defined proved in the 1960s to be extremely volatile. This was due to large movements of funds between foreign central banks and non-central-bank foreign holders, associated with the rise of the Eurodollar market. Oscillations of this kind do not represent changes in the fundamental balance that are needed in order to determine whether corrective measures are required. It may well be that the British method of omitting short-term capital movements altogether in the assessment of surplus or deficit is, although imperfect, the most practical available. Since exchange rates began to float in the early 1970s, the major industrial countries have paid much less attention to overall balance-of-payments measures. The current account and the trade account are the two measures that are now most commonly used in developing countries.
    2014-04-20 15:04:56

  • Jones Hanungu Munang'andu Zambia Assessing the balance To summarize, the overall balance of payments comprises the current account (merchandise and services), unilateral transfers (gifts, grants, remittances, and so on), and the capital account (long-term and short-term capital movements). If payments due in exceed those due out, a country is said to be in overall surplus; and when payments due out exceed payments due in, it is in overall deficit. The surplus or deficit must be balanced by a monetary movement in the opposite direction, and consequently the overall balance including monetary movements must always be equal. In practice, great difficulties have been found in assessing whether a country is in deficit or in surplus. It is often important to establish this with a view to possible corrective measures. The United Kingdom stresses the combined balance of current and long-term capital account—i.e., excluding short-term capital. Such a balance, however, omits short-term movements that occur in the ordinary course of business, which may be called “normal” and which ought in principle to be included. On the other hand it is not desirable to include equilibrating or disequilibrating capital movements. These occur in consequence of a deficit (or surplus), actual or anticipated. But there may be great statistical difficulty in distinguishing between the normal short-term capital flows and those that are consequential on a surplus or deficit. It has been noted that the overall balance, including monetary movements, must be equal, but it usually happens that the figures do not in fact balance. U.S. statisticians call the residual figure that has to be inserted to square the account “errors and omissions.” If the average value of this figure over a substantial period, such as 10 years—an even longer period may have to be taken if a country is in persistent surplus or deficit—has a positive or negative value of substantial amount, then it may be taken to constitute genuine items that have escaped the statistical net. These may legitimately be included in assessing whether a country is in genuine surplus or deficit and whether corrective measures are needed. The “errors and omissions” item is extremely volatile from year to year and often very large. Such movements up and down are probably caused by precautionary short-term capital movements. There have been periods when a minus item in the U.S. account was rather strikingly associated with a plus item in the U.K. account, and conversely. Accordingly, in the short term, the “errors and omissions” item should not be included in assessing whether a country is in surplus or deficit. It has been noted that the United Kingdom stresses the balance of current and long-term capital accounts (which include unilateral transfers). The U.S. position is less clear. It traditionally published two overall balance-of-payments measures: the “Liquidity Balance” and the “Official Settlements Balance.” In distinguishing between monetary and nonmonetary items, the Liquidity Balance included any increase in the holding of short-term dollar securities abroad as part of the U.S. deficit during the period; but it did not include as counterweight any increase in short-term foreign claims held by U.S. resident banks or others (apart from official holdings). Thus, in this respect the treatment was asymmetrical. The rationale for this was precautionary. The argument was that short-term dollar assets held abroad outside the central banks might at any time be sold in the market or turned in to the central banks of the respective countries and thus constitute a drain, or the threat of a drain, on U.S. reserves. On the other hand the corresponding foreign short-term assets held by U.S. resident banks or others were not readily mobilizable by U.S. authorities for making payments. Thus by this reckoning, if during a period non-central-bank foreign holdings of short-term dollar securities and resident non-central-bank U.S. holdings of short-term foreign securities went up by an equal amount, the situation would be shown as having deteriorated, since the former class (liabilities) were a threat to U.S. reserves, while the latter class (assets) could not be mobilized by U.S. authorities to meet such a threat. Thus, though the motive for this asymmetrical treatment may have been understandable, it was statistically unsatisfactory and also unsatisfactory as a guide to corrective action. This balance is thus mainly of historical interest, and it has not been commonly used since 1971. The U.S. Official Settlements Balance reckoned an increase in non-central-bank foreign holdings of short-term dollar assets as an inflow of short-term capital into the United States; similarly an increase in U.S. resident holdings of short-term foreign assets was an outflow of short-term capital. This was a logical treatment. But the balance thus defined proved in the 1960s to be extremely volatile. This was due to large movements of funds between foreign central banks and non-central-bank foreign holders, associated with the rise of the Eurodollar market. Oscillations of this kind do not represent changes in the fundamental balance that are needed in order to determine whether corrective measures are required. It may well be that the British method of omitting short-term capital movements altogether in the assessment of surplus or deficit is, although imperfect, the most practical available. Since exchange rates began to float in the early 1970s, the major industrial countries have paid much less attention to overall balance-of-payments measures. The current account and the trade account are the two measures that are now most commonly used in developing countries.
    2014-04-20 15:04:22

  • Jones Hanungu Munang'andu Zambia Assessing the balance To summarize, the overall balance of payments comprises the current account (merchandise and services), unilateral transfers (gifts, grants, remittances, and so on), and the capital account (long-term and short-term capital movements). If payments due in exceed those due out, a country is said to be in overall surplus; and when payments due out exceed payments due in, it is in overall deficit. The surplus or deficit must be balanced by a monetary movement in the opposite direction, and consequently the overall balance including monetary movements must always be equal. In practice, great difficulties have been found in assessing whether a country is in deficit or in surplus. It is often important to establish this with a view to possible corrective measures. The United Kingdom stresses the combined balance of current and long-term capital account—i.e., excluding short-term capital. Such a balance, however, omits short-term movements that occur in the ordinary course of business, which may be called “normal” and which ought in principle to be included. On the other hand it is not desirable to include equilibrating or disequilibrating capital movements. These occur in consequence of a deficit (or surplus), actual or anticipated. But there may be great statistical difficulty in distinguishing between the normal short-term capital flows and those that are consequential on a surplus or deficit. It has been noted that the overall balance, including monetary movements, must be equal, but it usually happens that the figures do not in fact balance. U.S. statisticians call the residual figure that has to be inserted to square the account “errors and omissions.” If the average value of this figure over a substantial period, such as 10 years—an even longer period may have to be taken if a country is in persistent surplus or deficit—has a positive or negative value of substantial amount, then it may be taken to constitute genuine items that have escaped the statistical net. These may legitimately be included in assessing whether a country is in genuine surplus or deficit and whether corrective measures are needed. The “errors and omissions” item is extremely volatile from year to year and often very large. Such movements up and down are probably caused by precautionary short-term capital movements. There have been periods when a minus item in the U.S. account was rather strikingly associated with a plus item in the U.K. account, and conversely. Accordingly, in the short term, the “errors and omissions” item should not be included in assessing whether a country is in surplus or deficit. It has been noted that the United Kingdom stresses the balance of current and long-term capital accounts (which include unilateral transfers). The U.S. position is less clear. It traditionally published two overall balance-of-payments measures: the “Liquidity Balance” and the “Official Settlements Balance.” In distinguishing between monetary and nonmonetary items, the Liquidity Balance included any increase in the holding of short-term dollar securities abroad as part of the U.S. deficit during the period; but it did not include as counterweight any increase in short-term foreign claims held by U.S. resident banks or others (apart from official holdings). Thus, in this respect the treatment was asymmetrical. The rationale for this was precautionary. The argument was that short-term dollar assets held abroad outside the central banks might at any time be sold in the market or turned in to the central banks of the respective countries and thus constitute a drain, or the threat of a drain, on U.S. reserves. On the other hand the corresponding foreign short-term assets held by U.S. resident banks or others were not readily mobilizable by U.S. authorities for making payments. Thus by this reckoning, if during a period non-central-bank foreign holdings of short-term dollar securities and resident non-central-bank U.S. holdings of short-term foreign securities went up by an equal amount, the situation would be shown as having deteriorated, since the former class (liabilities) were a threat to U.S. reserves, while the latter class (assets) could not be mobilized by U.S. authorities to meet such a threat. Thus, though the motive for this asymmetrical treatment may have been understandable, it was statistically unsatisfactory and also unsatisfactory as a guide to corrective action. This balance is thus mainly of historical interest, and it has not been commonly used since 1971. The U.S. Official Settlements Balance reckoned an increase in non-central-bank foreign holdings of short-term dollar assets as an inflow of short-term capital into the United States; similarly an increase in U.S. resident holdings of short-term foreign assets was an outflow of short-term capital. This was a logical treatment. But the balance thus defined proved in the 1960s to be extremely volatile. This was due to large movements of funds between foreign central banks and non-central-bank foreign holders, associated with the rise of the Eurodollar market. Oscillations of this kind do not represent changes in the fundamental balance that are needed in order to determine whether corrective measures are required. It may well be that the British method of omitting short-term capital movements altogether in the assessment of surplus or deficit is, although imperfect, the most practical available. Since exchange rates began to float in the early 1970s, the major industrial countries have paid much less attention to overall balance-of-payments measures. The current account and the trade account are the two measures that are now most commonly used in developing countries.
    2014-04-20 15:04:47

  • Jones Hanungu Munang'andu Zambia Assessing the balance To summarize, the overall balance of payments comprises the current account (merchandise and services), unilateral transfers (gifts, grants, remittances, and so on), and the capital account (long-term and short-term capital movements). If payments due in exceed those due out, a country is said to be in overall surplus; and when payments due out exceed payments due in, it is in overall deficit. The surplus or deficit must be balanced by a monetary movement in the opposite direction, and consequently the overall balance including monetary movements must always be equal. In practice, great difficulties have been found in assessing whether a country is in deficit or in surplus. It is often important to establish this with a view to possible corrective measures. The United Kingdom stresses the combined balance of current and long-term capital account—i.e., excluding short-term capital. Such a balance, however, omits short-term movements that occur in the ordinary course of business, which may be called “normal” and which ought in principle to be included. On the other hand it is not desirable to include equilibrating or disequilibrating capital movements. These occur in consequence of a deficit (or surplus), actual or anticipated. But there may be great statistical difficulty in distinguishing between the normal short-term capital flows and those that are consequential on a surplus or deficit. It has been noted that the overall balance, including monetary movements, must be equal, but it usually happens that the figures do not in fact balance. U.S. statisticians call the residual figure that has to be inserted to square the account “errors and omissions.” If the average value of this figure over a substantial period, such as 10 years—an even longer period may have to be taken if a country is in persistent surplus or deficit—has a positive or negative value of substantial amount, then it may be taken to constitute genuine items that have escaped the statistical net. These may legitimately be included in assessing whether a country is in genuine surplus or deficit and whether corrective measures are needed. The “errors and omissions” item is extremely volatile from year to year and often very large. Such movements up and down are probably caused by precautionary short-term capital movements. There have been periods when a minus item in the U.S. account was rather strikingly associated with a plus item in the U.K. account, and conversely. Accordingly, in the short term, the “errors and omissions” item should not be included in assessing whether a country is in surplus or deficit. It has been noted that the United Kingdom stresses the balance of current and long-term capital accounts (which include unilateral transfers). The U.S. position is less clear. It traditionally published two overall balance-of-payments measures: the “Liquidity Balance” and the “Official Settlements Balance.” In distinguishing between monetary and nonmonetary items, the Liquidity Balance included any increase in the holding of short-term dollar securities abroad as part of the U.S. deficit during the period; but it did not include as counterweight any increase in short-term foreign claims held by U.S. resident banks or others (apart from official holdings). Thus, in this respect the treatment was asymmetrical. The rationale for this was precautionary. The argument was that short-term dollar assets held abroad outside the central banks might at any time be sold in the market or turned in to the central banks of the respective countries and thus constitute a drain, or the threat of a drain, on U.S. reserves. On the other hand the corresponding foreign short-term assets held by U.S. resident banks or others were not readily mobilizable by U.S. authorities for making payments. Thus by this reckoning, if during a period non-central-bank foreign holdings of short-term dollar securities and resident non-central-bank U.S. holdings of short-term foreign securities went up by an equal amount, the situation would be shown as having deteriorated, since the former class (liabilities) were a threat to U.S. reserves, while the latter class (assets) could not be mobilized by U.S. authorities to meet such a threat. Thus, though the motive for this asymmetrical treatment may have been understandable, it was statistically unsatisfactory and also unsatisfactory as a guide to corrective action. This balance is thus mainly of historical interest, and it has not been commonly used since 1971. The U.S. Official Settlements Balance reckoned an increase in non-central-bank foreign holdings of short-term dollar assets as an inflow of short-term capital into the United States; similarly an increase in U.S. resident holdings of short-term foreign assets was an outflow of short-term capital. This was a logical treatment. But the balance thus defined proved in the 1960s to be extremely volatile. This was due to large movements of funds between foreign central banks and non-central-bank foreign holders, associated with the rise of the Eurodollar market. Oscillations of this kind do not represent changes in the fundamental balance that are needed in order to determine whether corrective measures are required. It may well be that the British method of omitting short-term capital movements altogether in the assessment of surplus or deficit is, although imperfect, the most practical available. Since exchange rates began to float in the early 1970s, the major industrial countries have paid much less attention to overall balance-of-payments measures. The current account and the trade account are the two measures that are now most commonly used in developing countries.
    2014-04-20 15:04:14

  • Jones Hanungu Munang'andu Zambia Assessing the balance To summarize, the overall balance of payments comprises the current account (merchandise and services), unilateral transfers (gifts, grants, remittances, and so on), and the capital account (long-term and short-term capital movements). If payments due in exceed those due out, a country is said to be in overall surplus; and when payments due out exceed payments due in, it is in overall deficit. The surplus or deficit must be balanced by a monetary movement in the opposite direction, and consequently the overall balance including monetary movements must always be equal. In practice, great difficulties have been found in assessing whether a country is in deficit or in surplus. It is often important to establish this with a view to possible corrective measures. The United Kingdom stresses the combined balance of current and long-term capital account—i.e., excluding short-term capital. Such a balance, however, omits short-term movements that occur in the ordinary course of business, which may be called “normal” and which ought in principle to be included. On the other hand it is not desirable to include equilibrating or disequilibrating capital movements. These occur in consequence of a deficit (or surplus), actual or anticipated. But there may be great statistical difficulty in distinguishing between the normal short-term capital flows and those that are consequential on a surplus or deficit. It has been noted that the overall balance, including monetary movements, must be equal, but it usually happens that the figures do not in fact balance. U.S. statisticians call the residual figure that has to be inserted to square the account “errors and omissions.” If the average value of this figure over a substantial period, such as 10 years—an even longer period may have to be taken if a country is in persistent surplus or deficit—has a positive or negative value of substantial amount, then it may be taken to constitute genuine items that have escaped the statistical net. These may legitimately be included in assessing whether a country is in genuine surplus or deficit and whether corrective measures are needed. The “errors and omissions” item is extremely volatile from year to year and often very large. Such movements up and down are probably caused by precautionary short-term capital movements. There have been periods when a minus item in the U.S. account was rather strikingly associated with a plus item in the U.K. account, and conversely. Accordingly, in the short term, the “errors and omissions” item should not be included in assessing whether a country is in surplus or deficit. It has been noted that the United Kingdom stresses the balance of current and long-term capital accounts (which include unilateral transfers). The U.S. position is less clear. It traditionally published two overall balance-of-payments measures: the “Liquidity Balance” and the “Official Settlements Balance.” In distinguishing between monetary and nonmonetary items, the Liquidity Balance included any increase in the holding of short-term dollar securities abroad as part of the U.S. deficit during the period; but it did not include as counterweight any increase in short-term foreign claims held by U.S. resident banks or others (apart from official holdings). Thus, in this respect the treatment was asymmetrical. The rationale for this was precautionary. The argument was that short-term dollar assets held abroad outside the central banks might at any time be sold in the market or turned in to the central banks of the respective countries and thus constitute a drain, or the threat of a drain, on U.S. reserves. On the other hand the corresponding foreign short-term assets held by U.S. resident banks or others were not readily mobilizable by U.S. authorities for making payments. Thus by this reckoning, if during a period non-central-bank foreign holdings of short-term dollar securities and resident non-central-bank U.S. holdings of short-term foreign securities went up by an equal amount, the situation would be shown as having deteriorated, since the former class (liabilities) were a threat to U.S. reserves, while the latter class (assets) could not be mobilized by U.S. authorities to meet such a threat. Thus, though the motive for this asymmetrical treatment may have been understandable, it was statistically unsatisfactory and also unsatisfactory as a guide to corrective action. This balance is thus mainly of historical interest, and it has not been commonly used since 1971. The U.S. Official Settlements Balance reckoned an increase in non-central-bank foreign holdings of short-term dollar assets as an inflow of short-term capital into the United States; similarly an increase in U.S. resident holdings of short-term foreign assets was an outflow of short-term capital. This was a logical treatment. But the balance thus defined proved in the 1960s to be extremely volatile. This was due to large movements of funds between foreign central banks and non-central-bank foreign holders, associated with the rise of the Eurodollar market. Oscillations of this kind do not represent changes in the fundamental balance that are needed in order to determine whether corrective measures are required. It may well be that the British method of omitting short-term capital movements altogether in the assessment of surplus or deficit is, although imperfect, the most practical available. Since exchange rates began to float in the early 1970s, the major industrial countries have paid much less attention to overall balance-of-payments measures. The current account and the trade account are the two measures that are now most commonly used in developing countries.
    2014-04-20 15:04:55

  • Jones Hanungu Munang'andu Zambia Assessing the balance To summarize, the overall balance of payments comprises the current account (merchandise and services), unilateral transfers (gifts, grants, remittances, and so on), and the capital account (long-term and short-term capital movements). If payments due in exceed those due out, a country is said to be in overall surplus; and when payments due out exceed payments due in, it is in overall deficit. The surplus or deficit must be balanced by a monetary movement in the opposite direction, and consequently the overall balance including monetary movements must always be equal. In practice, great difficulties have been found in assessing whether a country is in deficit or in surplus. It is often important to establish this with a view to possible corrective measures. The United Kingdom stresses the combined balance of current and long-term capital account—i.e., excluding short-term capital. Such a balance, however, omits short-term movements that occur in the ordinary course of business, which may be called “normal” and which ought in principle to be included. On the other hand it is not desirable to include equilibrating or disequilibrating capital movements. These occur in consequence of a deficit (or surplus), actual or anticipated. But there may be great statistical difficulty in distinguishing between the normal short-term capital flows and those that are consequential on a surplus or deficit. It has been noted that the overall balance, including monetary movements, must be equal, but it usually happens that the figures do not in fact balance. U.S. statisticians call the residual figure that has to be inserted to square the account “errors and omissions.” If the average value of this figure over a substantial period, such as 10 years—an even longer period may have to be taken if a country is in persistent surplus or deficit—has a positive or negative value of substantial amount, then it may be taken to constitute genuine items that have escaped the statistical net. These may legitimately be included in assessing whether a country is in genuine surplus or deficit and whether corrective measures are needed. The “errors and omissions” item is extremely volatile from year to year and often very large. Such movements up and down are probably caused by precautionary short-term capital movements. There have been periods when a minus item in the U.S. account was rather strikingly associated with a plus item in the U.K. account, and conversely. Accordingly, in the short term, the “errors and omissions” item should not be included in assessing whether a country is in surplus or deficit. It has been noted that the United Kingdom stresses the balance of current and long-term capital accounts (which include unilateral transfers). The U.S. position is less clear. It traditionally published two overall balance-of-payments measures: the “Liquidity Balance” and the “Official Settlements Balance.” In distinguishing between monetary and nonmonetary items, the Liquidity Balance included any increase in the holding of short-term dollar securities abroad as part of the U.S. deficit during the period; but it did not include as counterweight any increase in short-term foreign claims held by U.S. resident banks or others (apart from official holdings). Thus, in this respect the treatment was asymmetrical. The rationale for this was precautionary. The argument was that short-term dollar assets held abroad outside the central banks might at any time be sold in the market or turned in to the central banks of the respective countries and thus constitute a drain, or the threat of a drain, on U.S. reserves. On the other hand the corresponding foreign short-term assets held by U.S. resident banks or others were not readily mobilizable by U.S. authorities for making payments. Thus by this reckoning, if during a period non-central-bank foreign holdings of short-term dollar securities and resident non-central-bank U.S. holdings of short-term foreign securities went up by an equal amount, the situation would be shown as having deteriorated, since the former class (liabilities) were a threat to U.S. reserves, while the latter class (assets) could not be mobilized by U.S. authorities to meet such a threat. Thus, though the motive for this asymmetrical treatment may have been understandable, it was statistically unsatisfactory and also unsatisfactory as a guide to corrective action. This balance is thus mainly of historical interest, and it has not been commonly used since 1971. The U.S. Official Settlements Balance reckoned an increase in non-central-bank foreign holdings of short-term dollar assets as an inflow of short-term capital into the United States; similarly an increase in U.S. resident holdings of short-term foreign assets was an outflow of short-term capital. This was a logical treatment. But the balance thus defined proved in the 1960s to be extremely volatile. This was due to large movements of funds between foreign central banks and non-central-bank foreign holders, associated with the rise of the Eurodollar market. Oscillations of this kind do not represent changes in the fundamental balance that are needed in order to determine whether corrective measures are required. It may well be that the British method of omitting short-term capital movements altogether in the assessment of surplus or deficit is, although imperfect, the most practical available. Since exchange rates began to float in the early 1970s, the major industrial countries have paid much less attention to overall balance-of-payments measures. The current account and the trade account are the two measures that are now most commonly used in developing countries.
    2014-04-20 15:04:21

  • Jones Hanungu Munang'andu Zambia The accounting functions of the budget Traditionally the budget is presented to allow scrutiny (by taxpayers, voters, and the legislature) of the resources raised by government and the uses to which these will be put. The publication of a budget thus performs the role of generating accountability for the actions of government at various levels. Historically, the focus of budgets has been to ensure that expenditures and revenues are properly authorized; more recently, the budget has been developed as a framework within which complex decisions on the allocation of resources can be made more effectively. Alternative approaches to the budget In order to deal with the increasing complexity of government's role, most countries have experimented with a variety of forms for the budget and its presentation. Among the more important of these are the administrative budget, the current and capital budget, program and zero-base budgeting, and the full-employment budget. The variety of budgeting methods is extended to the types of efficiency measures used to increase value for money and to the alternative methods of projecting expenditures in cash, volume, and cost terms. Administrative budget The traditional administrative budget contains the executive's recommendations concerning the raising of what Magna Carta referred to as “scutage or aid” and the disposal of it for purposes of government. This kind of budget is designed to control expenditure; accordingly, it emphasizes the salaries and tasks of civil servants rather than the results that they are supposed to achieve. The control objective of the administrative budget naturally gives rise to the doctrine that the budget should be balanced. Deficits imply irresponsibility. Surpluses imply the imposition of unwarranted tax burdens on the public. The limitation of the administrative budget is that some important items receive less than adequate attention or are excluded from it entirely. Military procurement is one example. Neither budget offices nor appropriations committees are well equipped to scrutinize the actual procurement of ships or aircraft. Consequently, in most countries large expenditures on military items are often treated perfunctorily while the activities of civil servants receive inordinate amounts of attention. The basic weakness of the administrative budget is that it is principally concerned with whether expenditure has been properly authorized, rather than whether money has been well spent. Moreover, the administrative budget often excludes trust funds used to finance contributory old-age and unemployment insurance; taxes are paid directly into the funds and disbursements made out of them. The theory is that the government acts as trustee for the public and that the public is protected by having its social security taxes put in a separate fund. Many countries have adopted this idea of “social insurance”; it formed the heart of Bismarck's social policy for Germany in the 1870s and of the British welfare state, founded in 1948. In most cases, however, the attempt to generate a distinct fund has failed, and “contributions” have become just another tax with expenditures on, for example, retirement pensions paid irrespective of the resources available to the fund. Other items may be included in the budget on a net rather than a gross basis. For instance, the total receipts and expenditures of the post office or other commercial activities of the public sector usually do not appear; only the deficit or surplus does. This is justified by the theory that, first, business management is not well performed by legislative committees and, second, that so long as a business undertaking pays its way, its conduct is not a matter of public concern. The problem is that the distinction between commercial and noncommercial activities is often arbitrarily made. Current and capital budget The administrative budget traditionally deals only with current expenditures; in many countries, some items are regarded as inappropriate for inclusion because they finance capital expenditures or are loans to other public bodies. Such items are then included “below the line,” and the traditional concept of budget balance is not applied to them; instead, it is regarded as permissible to finance them by borrowing. Direct public works or investment in nationalized industries are regarded by most countries as suitable for loan financing on the ground that they are productive assets that will yield a revenue sufficient to cover their cost. They may do so either directly, as in the case of a toll highway, or indirectly by increasing the general economic welfare, as in the case of a free highway. If, however, there is no market in which the output of a public activity is sold, there can be no objective test of its value. Hence, governments are often tempted to classify expenditure on such assets as capital items that yield a social but no economic return (e.g., free playgrounds) or a lower economic return than any private sector institution would accept (as in government support for declining industries). For this reason, distinctions between current and capital expenditures in public accounts are often viewed with suspicion. This suspicion may be increased where, as is often the case, the rules for what is regarded as current or capital are rather indistinct. Moreover, governments have been reluctant to adopt the systematic distinction between current and capital items, or between cash flows and profit and loss accounts, or to construct a balance sheet, even though these mechanisms of monitoring receipts and expenditures are universal in private sector accounting. The federal government of the United States, for example, has resisted the idea of a capital budget, even though there was strong pressure for one in the 1930s when economists and politicians wanted to legitimize the government deficit. Among U.S. state and municipal governments, however, loan financing of public works is the regular practice for two reasons. First, those bodies are usually unable to finance their projects by current taxation; second, they do not want to finance them because the projects are generally of a long-term nature. Most national governments have become accustomed to thinking in terms of national economic policies in which the amount of borrowing to be undertaken depends on current requirements for stability and growth. This makes capital budgeting less attractive, particularly if the government wishes to use the budget to supplement the national flow of savings. The more need there is to increase saving, the smaller should be the amount of government borrowing. On the other hand, government borrowing is justified when private savings tend to exceed private capital requirements. This lack of explicit monitoring for the capital position of governments can have serious consequences when the government unwittingly takes on large liabilities or uses capital assets to finance current expenditures. Examples are provided by the growing problems in some countries in financing generous state pension schemes and the wasting of assets such as oil reserves.
    2014-04-19 21:04:25

  • Jones Hanungu Munang'andu Zambia Managerial accounting Although published financial statements are the most widely visible products of business accounting systems and the ones with which the public is most concerned, they represent only a small portion of all the accounting activities that support an organization. Most accounting data and most accounting reports are generated solely or mainly for the company's managers. Reports to management may be either summaries of past events, forecasts of the future, or a combination of the two. Preparation of these data and reports is the focus of managerial accounting, which consists mainly of four broad functions: (1) budgetary planning, (2) cost finding, (3) cost and profit analysis, and (4) performance reporting.
    2014-04-03 08:04:06

  • Jones Hanungu Munang'andu Zambia Managerial accounting Although published financial statements are the most widely visible products of business accounting systems and the ones with which the public is most concerned, they represent only a small portion of all the accounting activities that support an organization. Most accounting data and most accounting reports are generated solely or mainly for the company's managers. Reports to management may be either summaries of past events, forecasts of the future, or a combination of the two. Preparation of these data and reports is the focus of managerial accounting, which consists mainly of four broad functions: (1) budgetary planning, (2) cost finding, (3) cost and profit analysis, and (4) performance reporting.
    2014-04-03 08:04:50

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