SHIPS Hull (watercraft)

A hull is the watertight body of a ship or boat. Above the hull is the superstructure and/or deckhouse, where present. The line where the hull meets the water surface is called the waterline. The structure of the hull varies depending on the vessel type. In a typical modern steel ship, the structure consists of watertight and non-tight decks, major transverse and watertight and also sometimes non-tight or longitudinal! members called bulkheads, intermediate members such as girders, stringers and webs, and minor members called ordinary transverse frames, frames, or longitudinals, depending on the structural arrangement. The uppermost continuous deck may be called the "upper deck", "weather deck", "spar deck", "main deck", or simply "deck". The particular name given depends on the conte#t$the type of ship or boat, the arrangement, or even where it sails. %ot all hulls are decked for instance a dinghy!. In a typical wooden sailboat, the hull is constructed of wooden planking, supported by transverse frames often referred to as ribs! and bulkheads, which are further tied together by longitudinal stringers or ceiling. &ften but not always there is a centerline longitudinal member called a keel. In fiberglass or composite hulls, the structure may resemble wooden or steel vessels to some e#tent, or be of a monoco'ue arrangement. In many cases, composite hulls are built by sandwiching thin fiber-reinforced skins over a lightweight but reasonably rigid core of foam, balsa wood, impregnated paper honeycomb or other material.

General features
The shape of the hull is entirely dependent upon the needs of the design. (hapes range from a nearly perfect bo# in the case of scow barges, to a needle-sharp surface of revolution in the case of a racing multihull sailboat. The shape is chosen to strike a balance between cost, hydrostatic considerations accommodation, load carrying and stability!, hydrodynamics speed, power re'uirements, and motion and behavior in a seaway! and special considerations for the ship)s role, such as the rounded bow of an icebreaker or the flat bottom of a landing craft.

Hull shapes
*ulls come in many varieties and can have composite shape, e.g., a fine entry forward and inverted bell shape aft!, but are grouped primarily as follows+

,hined and *ard-chined. -#amples are the flat-bottom chined!, v-bottom and multi-bottom hull hard chined!.

have at least one pronounced knuckle throughout all or most of their length .oulded, round bilged or soft-chined. -#amples are the round bilge, semiround bilge and s-bottom hull.

Categorisation
/

After this they can be categori0ed as+

1isplacement

the hull is supported exclusively or predominantly by buoyancy. Vessels that have this type of hull travel through the water at a limited rate which is defined by the waterline length. They are often heavier than planing types, though not always. 2laning 3oyal %avy 4orld 4ar II .T5 planing at speed on calm water showing its *ard chine hull - note how most of the forepart of the boat is out of the water the planing hull form is configured to develop positive dynamic pressure so that its draft decreases with increasing speed. The dynamic lift reduces the wetted surface and therefore also the drag. They are sometimes flat-bottomed, sometimes V-bottomed and sometimes round-bilged. The most common form is to have at least one chine, which makes for more efficient planing and can throw spray down. Planing hulls are more efficient at higher speeds, although they still require more energy to achieve these speeds. see+ 2laning sailing!, *ull speed!. (emi-displacement, or semi-planing the hull form is capable of developing a moderate amount of dynamic lift, however, most of the vessel s weight is still supported through buoyancy

Most used hull forms

At present, the most widely used form is the round bilge hull.6/7 The inverted bell shape of the hull, with smaller payload the waterline cross-section is less, hence the resistance is less and the speed is higher. 4ith higher payload the outward bend provides smoother performance in waves. As such, the inverted bell shape is a popular form used with planing hulls.

Hull forms
Chined and hard-chined hulls A chined hull consists of straight, smooth, tall, long, or short plates, which are set at an angle to each other. The chined hull is the most simple hull shape because it works with only straight planks. These boards are often bent lengthwise. .ost home-made constructed boats are chined hull boats. The ,ajun "pirogue" is an e#ample of a craft with hard chines. 5enefits of this type of boating activity is the low production cost and the usually! fairly flat bottom, making the boat faster at planing. ,hined hulls can also make use of a daggerboard or attached keel.

,hined hulls can be divided up into 8 shapes+

9lat-bottom chined hulls :

.ulti-chined hulls ;-bottom chined hulls.

Smooth curve hulls (mooth curve hulls are hulls which use, just like the curved hulls, a sword or an attached keel. (emi round bilge hulls are somewhat less round. The advantage of the semi-round is that it is a nice middle between the (-bottom and chined hull. Typical e#amples of a semiround bilge hull can be found in the ,entaur and <aser cruising dinghies.

A! (-bottom hull compared to a 5! hard and ,! soft chine hull (-bottom hulls are hulls shaped like an s . In the s-bottom, the hull runs smooth to the keel. As there are no sharp corners in the fuselage. 5oats with this hull have a fi#ed keel, or a kielmid!waard. This is a short fi#ed keel, with a swing keel inside. -#amples of cruising dinghies that use this s-shape are the yngling and 3andmeer.

ppendages

,ontrol devices such as a rudder, trim tabs or stabili0ing fins may be fitted. A keel may be fitted on a hull to increase the transverse stability, directional stability or to create lift. A protrusion below the waterline forward is called a bulbous bow and is fitted on some hulls to reduce the wave making resistance drag and thus increase fuel efficiency. 5ulbs fitted at the stern are less common but accomplish a similar task. see also+ %aval architecture!

!erms
8

"aseline is an imaginary reference line used to measure vertical distances from. "ow is the front part of the hull midships is the middle portion of the vessel in the fore and aft direction. Port is the left side of the vessel when facing the bow Star#oard is the right side of the vessel when facing the bow Stern is the rear part of the hull $aterline is an imaginary line circumscribing the hull that matches the surface of the water when the hull is not moving.

Metrics

*ull forms are defined as follows+

"loc% measures that define the principal dimensions. They are+ 5eam or breadth "! is the width of the hull. e#+ 54< is the ma#imum beam at the waterline! 1raft d! or !! is the vertical distance from the bottom of the keel to the waterline. 9reeboard &"! is depth plus the height of the keel structure minus draft. <ength at the waterline '$'! is the length from the forwardmost point of the waterline measured in profile to the stern-most point of the waterline. <ength between perpendiculars '"P or 'PP! is the length of the summer load waterline from the stern post to the point where it crosses the stem. see also p/p! <ength overall '( ! is the e#treme length from one end to the other. .oulded depth )! is the vertical distance measured from the top of the keel to the underside of the upper deck at side.6:7 &orm derivatives that are calculated from the shape and the block measures. They are+ 1isplacement *! is the weight of water e'uivalent to the immersed volume of the hull.

<ongitudinal centre of buoyancy 'C"! is the longitudinal distance from a point of reference often midships! to the centre of the displaced volume of water when the hull is not moving. %ote that the longitudinal centre of gravity or centre of the weight of the vessel must align with the <,5 when the hull is in e'uilibrium. <ongitudinal centre of floatation 'C&! is the longitudinal distance from a point of reference often midships! to the centre of the area of waterplane when the hull is not moving. This can be visuali0ed as being the area defined by the water)s surface and the hull. ;ertical centre of buoyancy +C"! is the vertical distance from a point of reference often the baseline! to the centre of the displaced volume of water when the hull is not moving. ;olume + or ! is the volume of water displaced by the hull. Coefficients687 help compare hull forms as well+

/! 5lock coefficient C#! is the volume ;! divided by the <4< # 54< # T. If you draw a bo# around the submerged part of the ship, it is the ratio of the bo# volume occupied by the ship. It gives a sense of how much of the block defined by the <4<, beam 5! > draft T! is filled by the hull. 9ull forms such as oil tankers will have a high ,b where fine shapes such as sailboats will have a low ,b.

:! .idship coefficient Cm or C,! is the cross-sectional area A#! of the slice at midships or at the largest section for ,#! divided by beam # draft. It displays the ratio of the largest underwater section of the hull to a rectangle of the same overall width and depth as the underwater section of the hull. This defines the fullness of the underbody. A low ,m indicates a cut-away mid-section and a high ,m indicates a bo#y section shape. (ailboats have a cut-away mid-section with low ,# whereas cargo vessels have a bo#y section with high ,# to help increase the ,b.

8! 2rismatic coefficient Cp! is the volume ;! divided by <pp # A#. It displays the ratio of the immersed volume of the hull to a volume of a prism with e'ual length to the ship and cross-sectional area e'ual to the largest underwater section of the hull midship section!. This is used to evaluate the distribution of the volume of the underbody. A low or fine ,p indicates a full mid-section and fine ends, a high or full ,p indicates a boat with fuller ends. 2laning hulls and other highspeed hulls tend towards a higher ,p. -fficient displacement hulls travelling at a low 9roude number will tend to have a low ,p.

=! 4aterplane coefficient Cw! is the waterplane area divided by <pp # 5. The waterplane coefficient e#presses the fullness of the waterplane, or the ratio of the waterplane area to a rectangle of the same length and width. A low ,w figure indicates fine ends and a high ,w figure indicates fuller ends. *igh ,w improves stability as well as handling behavior in rough conditions. ?

-ote.

Histor/
3afts have a hull of sorts, however, hulls of the earliest design are thought to have each consisted of a hollowed out tree bole+ in effect the first canoes. *ull form then proceeded to the coracle shape and on to more sophisticated forms as the science of naval architecture advanced.

"alance of pa/ments
"alance of pa/ments "oP! accounts are an accounting record of all monetary transactions between a country and the rest of the world.6/7 These transactions include payments for the country)s e#ports and imports of goods, services, financial capital, and financial transfers. The 5&2 accounts summari0e international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. (ources of funds for a nation, such as e#ports or the receipts of loans and investments, are recorded as positive or surplus items. @ses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items. 4hen all components of the 5&2 accounts are included they must sum to 0ero with no overall surplus or deficit. 9or e#ample, if a country is importing more than it e#ports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways A such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries. 4hile the overall 5&2 accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the 5&2, such as the current account, the capital account e#cluding the central bank)s reserve account, or the sum of the two. Imbalances in the latter sum can result in surplus countries accumulating wealth, while deficit nations become increasingly indebted. The term "balance of payments" often refers to this sum+ a country)s balance of payments is said to be in surplus e'uivalently, the balance of payments is positive! by a specific amount if sources of funds such as e#port goods sold and bonds sold! e#ceed uses of funds such as paying for imported goods and paying for foreign bonds purchased! by that amount. There is said to be a balance of payments deficit the balance of payments is said to be negative! if the former are less than the latter. @nder a fi#ed e#change rate system, the central bank accommodates those flows by buying up any net inflow of funds into the country or by providing foreign currency funds to the foreign e#change market to match any international outflow of funds, thus B

preventing the funds flows from affecting the e#change rate between the country)s currency and other currencies. Then the net change per year in the central bank)s foreign e#change reserves is sometimes called the balance of payments surplus or deficit. Alternatives to a fi#ed e#change rate system include a managed float where some changes of e#change rates are allowed, or at the other e#treme a purely floating e#change rate also known as a purely flexible e#change rate!. 4ith a pure float the central bank does not intervene at all to protect or devalue its currency, allowing the rate to be set by the market, and the central bank)s foreign e#change reserves do not change. *istorically there have been different approaches to the 'uestion of how or even whether to eliminate current account or trade imbalances. 4ith record trade imbalances held up as one of the contributing factors to the financial crisis of :CCDA:C/C, plans to address global imbalances have been high on the agenda of policy makers since :CCE.

Composition of the #alance of pa/ments sheet

5&2 The two principal parts of the 5&2 accounts are the current account and the capital account. The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. It is the sum of the balance of trade net earnings on e#ports minus payments for imports!, factor income earnings on foreign investments minus payments made to foreign investors! and cash transfers. It is called the current account as it covers transactions in the "here and now" A those that don)t give rise to future claims.6:7 The "apital #ccount records the net change in ownership of foreign assets. It includes the reserve account the foreign e#change market operations of a nation)s central bank!, along with loans and investments between the country and the rest of world but not the future regular repayments/dividends that the loans and investments yieldF those are earnings and will be recorded in the current account!. The term "capital account" is also used in the narrower sense that e#cludes central bank foreign e#change market operations+ (ometimes the reserve account is classified as "below the line" and so not reported as part of the capital account.687 -#pressed with the broader meaning for the capital account, the 5&2 identity assumes that any current account surplus will be balanced by a capital account deficit of e'ual si0e A or alternatively a current account deficit will be balanced by a corresponding capital account surplus+

The balancing item, which may be positive or negative, is simply an amount that accounts for any statistical errors and assures that the current and capital accounts sum to 0ero. 5y the principles of double entry accounting, an entry in the current account gives rise to an entry in the capital account, and in aggregate the two accounts automatically balance. A balance isn)t always reflected in reported figures for the current and capital accounts, which might, for e#ample, report a surplus for both accounts, but when this happens it always means something has been missed A most commonly, the operations of D

the country)s central bank A and what has been missed is recorded in the statistical discrepancy term the balancing item!.687 An actual balance sheet will typically have numerous sub headings under the principal divisions. 9or e#ample, entries under Current account might include+

Trade A buying and selling of goods and services o $xports A a credit entry o %mports A a debit entry Trade balance A the sum of -#ports and Imports &actor income A repayments and dividends from loans and investments o &actor earnings A a credit entry o &actor payments A a debit entry &actor income balance A the sum of earnings and payments.

-specially in older balance sheets, a common division was between visible and invisible entries. ;isible trade recorded imports and e#ports of physical goods entries for trade in physical goods e#cluding services is now often called the merchandise balance!. Invisible trade would record international buying and selling of services, and sometimes would be grouped with transfer and factor income as invisible earnings.6/7 The term "balance of payments surplus" or deficit A a deficit is simply a negative surplus! refers to the sum of the surpluses in the current account and the narrowly defined capital account e#cluding changes in central bank reserves!. 1enoting the balance of payments surplus as 5&2 surplus, the relevant identity is

+ariations in the use of term 0#alance of pa/ments0

-conomics writer G. &rlin Hrabbe warns the term balance of payments can be a source of misunderstanding due to divergent e#pectations about what the term denotes. Hrabbe says the term is sometimes misused by people who aren)t aware of the accepted meaning, not only in general conversation but in financial publications and the economic literature.
687

A common source of confusion arises from whether or not the reserve account entry, part of the capital account, is included in the 5&2 accounts. The reserve account records the activity of the nation)s central bank. If it is e#cluded, the 5&2 can be in surplus which implies the central bank is building up foreign e#change reserves! or in deficit which implies the central bank is running down its reserves or borrowing from abroad!.6/7687 The term "balance of payments" is sometimes misused by non-economists to mean just relatively narrow parts of the 5&2 such as the trade deficit,687 which means e#cluding parts of the current account and the entire capital account. Another cause of confusion is the different naming conventions in use.6=7 5efore /ED8 there was no standard way to break down the 5&2 sheet, with the separation into invisible and visible payments sometimes being the principal divisions. The I.9 have I

their own standards for 5&2 accounting which is e'uivalent to the standard definition but uses different nomenclature, in particular with respect to the meaning given to the term capital account.

!he IM& definition

The International .onetary 9und I.9! use a particular set of definitions for the 5&2 accounts, which is also used by the &rganisation for -conomic ,o-operation and 1evelopment &-,1!, and the @nited %ations (ystem of %ational Accounts (%A!.6?7 The main difference in the I.9)s terminology is that it uses the term "financial account" to capture transactions that would under alternative definitions be recorded in the capital account. The I.9 uses the term capital account to designate a subset of transactions that, according to other usage, form a small part of the overall capital account.6B7 The I.9 separates these transactions out to form an additional top level division of the 5&2 accounts. -#pressed with the I.9 definition, the 5&2 identity can be written+

The I.9 uses the term current account with the same meaning as that used by other organi0ations, although it has its own names for its three leading sub-divisions, which are+

The goods and services account the overall trade balance! The primary income account factor income such as from loans and investments! The secondary income account transfer payments!

Im#alances
4hile the 5&2 has to balance overall,6D7 surpluses or deficits on its individual elements can lead to imbalances between countries. In general there is concern over deficits in the current account.6I7 ,ountries with deficits in their current accounts will build up increasing debt and/or see increased foreign ownership of their assets. The types of deficits that typically raise concern are6/7

A visible trade deficit where a nation is importing more physical goods than it e#ports even if this is balanced by the other components of the current account.! An overall current account deficit. A basic deficit which is the current account plus foreign direct investment but e#cluding other elements of the capital account like short terms loans and the reserve account.!

As discussed in the history section below, the 'ashington "onsensus period saw a swing of opinion towards the view that there is no need to worry about imbalances. &pinion swung back in the opposite direction in the wake of financial crisis of ())*+()),. .ainstream opinion e#pressed by the leading financial press and economists, international bodies like the I.9 A as well as leaders of surplus and deficit countries A has returned to the view that large current account imbalances do matter.6E7 (ome economists do, however, remain relatively unconcerned about imbalances6/C7 and there E

have been assertions, such as by .ichael 2. 1ooley, 1avid 9olkerts-<andau and 2eter Harber, that nations need to avoid temptation to switch to protectionism as a means to correct imbalances.6//7

Causes of "(P im#alances

There are conflicting views as to the primary cause of 5&2 imbalances, with much attention on the @( which currently has by far the biggest deficit. The conventional view is that current account factors are the primary cause6/:7 A these include the e#change rate, the government)s fiscal deficit, business competitiveness, and private behaviour such as the willingness of consumers to go into debt to finance e#tra consumption.6/87 An alternative view, argued at length in a :CC? paper by 5en 5ernanke, is that the primary driver is the capital account, where a global savings glut caused by savers in surplus countries, runs ahead of the available investment opportunities, and is pushed into the @( resulting in e#cess consumption and asset price inflation.6/=7

1eserve asset
In the conte#t of 5&2 and international monetary systems, the reserve asset is the currency or other store of value that is primarily used by nations for their foreign reserves.6/?7 5&2 imbalances tend to manifest as hoards of the reserve asset being amassed by surplus countries, with deficit countries building debts denominated in the reserve asset or at least depleting their supply. @nder a gold standard, the reserve asset for all members of the standard is gold. In the 5retton 4oods system, either gold or the @.(. dollar could serve as the reserve asset, though its smooth operation depended on countries apart from the @( choosing to keep most of their holdings in dollars. 9ollowing the ending of 5retton 4oods, there has been no de -ure reserve asset, but the @( dollar has remained by far the principal de facto reserve. Hlobal reserves rose sharply in the first decade of the :/st century, partly as a result of the /EED Asian 9inancial ,risis, where several nations ran out of foreign currency needed for essential imports and thus had to accept deals on unfavourable terms. The International .onetary 9und I.9! estimates that between :CCC to mid-:CCE, official reserves rose from J/,ECCbn to JB,ICCbn.6/B7 Hlobal reserves had peaked at about JD,?CCbn in mid-:CCI, then declined by about J=8Cbn as countries without their own reserve currency used them to shield themselves from the worst effects of the financial crisis. 9rom 9eb :CCE global reserves began increasing again to reach close to JE,:CCbn by the end of :C/C.6/D7 6/I7 As of :CCE, appro#imately B?K of the world)s JB,ICCbn total is held in @.(. dollars and appro#imately :?K in euros. The @L pound, Gapanese yen, I.9 special drawing rights (13s!, and precious metals6/E7 also play a role. In :CCE, Mhou Niaochuan, governor of the 2eople)s 5ank of ,hina, proposed a gradual move towards increased use of (13s, and also for the national currencies backing (13s to be e#panded to include the currencies of all major economies.6:C7 6:/7 1r Mhou)s proposal has been described as one of the most significant ideas e#pressed in :CCE.6::7 4hile the current central role of the dollar does give the @( some advantages, such as lower cost of borrowings, it also contributes to the pressure causing the @.(. to run a current account deficit, due to the Triffin dilemma. In a %ovember :CCE article published /C

in &oreign #ffairs maga0ine, economist ,. 9red 5ergsten argued that 1r Mhou)s suggestion or a similar change to the international monetary system would be in the @nited (tates) best interests as well as the rest of the world)s.6:87 (ince :CCE there has been a notable increase in the number of new bilateral agreements which enable international trades to be transacted using a currency that isn)t a traditional reserve asset, such as the renminbi, as the (ettlement currency. 6:=7

"alance of pa/ments crisis

A 5&2 crisis, also called a currency crisis, occurs when a nation is unable to pay for essential imports and/or service its debt repayments. Typically, this is accompanied by a rapid decline in the value of the affected nation)s currency. ,rises are generally preceded by large capital inflows, which are associated at first with rapid economic growth.6:?7 *owever a point is reached where overseas investors become concerned about the level of debt their inbound capital is generating, and decide to pull out their funds.6:B7 The resulting outbound capital flows are associated with a rapid drop in the value of the affected nation)s currency. This causes issues for firms of the affected nation who have received the inbound investments and loans, as the revenue of those firms is typically mostly derived domestically but their debts are often denominated in a reserve currency. &nce the nation)s government has e#hausted its foreign reserves trying to support the value of the domestic currency, its policy options are very limited. It can raise its interest rates to try to prevent further declines in the value of its currency, but while this can help those with debts denominated in foreign currencies, it generally further depresses the local economy.6:?7 6:D7 6:I7

"alancing mechanisms
&ne of the three fundamental functions of an international monetary system is to provide mechanisms to correct imbalances.6:E768C7 5roadly speaking, there are three possible methods to correct 5&2 imbalances, though in practice a mi#ture including some degree of at least the first two methods tends to be used. These methods are adjustments of e#change ratesF adjustment of a nations internal prices along with its levels of demandF and rules based adjustment.68/7 Improving productivity and hence competitiveness can also help, as can increasing the desirability of e#ports through other means, though it is generally assumed a nation is always trying to develop and sell its products to the best of its abilities.

1e#alancing #/ changing the e,change rate

An upwards shift in the value of a nation)s currency relative to others will make a nation)s e#ports less competitive and make imports cheaper and so will tend to correct a current account surplus. It also tends to make investment flows into the capital account less attractive so will help with a surplus there too. ,onversely a downward shift in the value of a nation)s currency makes it more e#pensive for its citi0ens to buy imports and increases the competitiveness of their e#ports, thus helping to correct a deficit though the solution often doesn)t have a positive impact immediately due to the .arshallA<erner condition!.68:7 //

-#change rates can be adjusted by government6887 in a rules based or managed currency regime, and when left to float freely in the market they also tend to change in the direction that will restore balance. 4hen a country is selling more than it imports, the demand for its currency will tend to increase as other countries ultimately68=7 need the selling country)s currency to make payments for the e#ports. The e#tra demand tends to cause a rise of the currency)s price relative to others. 4hen a country is importing more than it e#ports, the supply of its own currency on the international market tends to increase as it tries to e#change it for foreign currency to pay for its imports, and this e#tra supply tends to cause the price to fall. 5&2 effects are not the only market influence on e#change rates however, they are also influenced by differences in national interest rates and by speculation.

1e#alancing #/ ad2usting internal prices and demand

4hen e#change rates are fi#ed by a rigid gold standard,68?7 or when imbalances e#ist between members of a currency union such as the -uro0one, the standard approach to correct imbalances is by making changes to the domestic economy. To a large degree, the change is optional for the surplus country, but compulsory for the deficit country. In the case of a gold standard, the mechanism is largely automatic. 4hen a country has a favourable trade balance, as a conse'uence of selling more than it buys it will e#perience a net inflow of gold. The natural effect of this will be to increase the money supply, which leads to inflation and an increase in prices, which then tends to make its goods less competitive and so will decrease its trade surplus. *owever the nation has the option of taking the gold out of economy sterilising the inflationary effect! thus building up a hoard of gold and retaining its favourable balance of payments. &n the other hand, if a country has an adverse 5&2 it will e#perience a net loss of gold, which will automatically have a deflationary effect, unless it chooses to leave the gold standard. 2rices will be reduced, making its e#ports more competitive, and thus correcting the imbalance. 4hile the gold standard is generally considered to have been successful68B7 up until /E/=, correction by deflation to the degree re'uired by the large imbalances that arose after 44I proved painful, with deflationary policies contributing to prolonged unemployment but not re-establishing balance. Apart from the @( most former members had left the gold standard by the mid-/E8Cs. A possible method for surplus countries such as Hermany to contribute to re-balancing efforts when e#change rate adjustment is not suitable, is to increase its level of internal demand i.e. its spending on goods!. 4hile a current account surplus is commonly understood as the e#cess of earnings over spending, an alternative e#pression is that it is the e#cess of savings over investment.68D7 That is+

where "# O current account, ./ O national savings private plus government sector!, .% O national investment. If a nation is earning more than it spends the net effect will be to build up savings, e#cept to the e#tent that those savings are being used for investment. If consumers can be encouraged to spend more instead of savingF or if the government runs a fiscal deficit to offset private savingsF or if the corporate sector divert more of their profits to investment, then any current account surplus will tend to be reduced. *owever in :CCE Hermany /:

amended its constitution to prohibit running a deficit greater than C.8?K of its H1268I7 and calls to reduce its surplus by increasing demand have not been welcome by officials, 68E7 adding to fears that the :C/Cs will not be an easy decade for the euro0one.6=C7 In their April :C/C world economic outlook report, the I.9 presented a study showing how with the right choice of policy options governments can transition out of a sustained current account surplus with no negative effect on growth and with a positive impact on unemployment.6=/7

1ules #ased re#alancing mechanisms

%ations can agree to fi# their e#change rates against each other, and then correct any imbalances that arise by rules based and negotiated e#change rate changes and other methods. The 5retton 4oods system of fi#ed but adjustable e#change rates was an e#ample of a rules based system, though it still . Gohn .aynard Leynes, one of the architects of the 5retton 4oods system had wanted additional rules to encourage surplus countries to share the burden of rebalancing, as he argued that they were in a stronger position to do so and as he regarded their surpluses as negative e#ternalities imposed on the global economy.6=:7 Leynes suggested that traditional balancing mechanisms should be supplemented by the threat of confiscation of a portion of e#cess revenue if the surplus country did not choose to spend it on additional imports. *owever his ideas were not accepted by the Americans at the time. In :CCI and :CCE, American economist 2aul 1avidson had been promoting his revamped form of Leynes)s plan as a possible solution to global imbalances which in his opinion would e#pand growth all round without the downside risk of other rebalancing methods.68:76=876==7

Histor/ of #alance of pa/ments issues

*istorically, accurate balance of payments figures were not generally available. *owever, this did not prevent a number of switches in opinion on 'uestions relating to whether or not a nations government should use policy to encourage a favourable balance.

Pre-3456. mercantilism
@p until the early /Eth century, international trade was generally very small in comparison with national output, and was often heavily regulated. In the .iddle Ages, -uropean trade was typically regulated at municipal level in the interests of security for local industry and for established merchants.6=?7 9rom about the /Bth century, mercantilism became the dominant economic theory influencing -uropean rulers, which saw local regulation replaced by national rules aiming to harness the countries) economic output.6=B7 .easures to promote a trade surplus such as tariffs were generally favoured. 2ower was associated with wealth, and with low levels of growth, nations were best able to accumulate funds either by running trade surpluses or by forcefully confiscating the wealth of others. 3ulers sometimes strove to have their countries outsell competitors and so build up a "war chest" of gold.6=D7 This era saw low levels of economic growthF average global per capita income is not considered to have significantly risen in the whole ICC years leading up to /I:C, and is estimated to have increased on average by less than C./K per year between /DCC and /8

/I:C.6:?7 4ith very low levels of financial integration between nations and with international trade generally making up a low proportion of individual nations) H12, 5&2 crises were very rare.6:?7 Hold was the primary reserve asset during the gold standard era. 9rom the late /Ith century, mercantilism was challenged by the ideas of Adam (mith and other economic thinkers favouring free trade. After victory in the %apoleonic wars Hreat 5ritain began promoting free trade, unilaterally reducing her trade tariffs. *oarding of gold was no longer encouraged, and in fact 5ritain e#ported more capital as a percentage of her national income than any other creditor nation has since.6=I7 Hreat 5ritain)s capital e#ports further helped to correct global imbalances as they tended to be counter cyclical, rising when 5ritain)s economy went into recession, thus compensating other states for income lost from e#port of goods.6:?7 According to historian ,arroll Puigley, Hreat 5ritain could afford to act benevolently6=E7 in the /Eth century due to the advantages of her geographical location, its naval power and economic ascendancy as the first nation to enjoy an industrial revolution.6?C7 A view advanced by economists such as 5arry -ichengreen is that the first age of Hlobali0ation began with the laying of transatlantic cables in the /IBCs, which facilitated a rapid increase in the already growing trade between 5ritain and America.6:I7 Though ,urrent Account controls were still widely used in fact all industrial nations apart from Hreat 5ritain and the %etherlands actually increased their tariffs and 'uotas in the decades leading up to /E/=, though this was motivated more by a desire to protect "infant industries" than to encourage a trade surplus6:?7!, capital controls were largely absent, and people were generally free to cross international borders without re'uiring passports. A gold standard enjoyed wide international participation especially from /IDC, further contributing to close economic integration between nations. The period saw substantial global growth, in particular for the volume of international trade which grew tenfold between /I:C and /IDC and then by about =K annually from /IDC to /E/=. 5&2 crises began to occur, though less fre'uently than was to be the case for the remainder of the :Cth century. 9rom /IIC to /E/=, there were appro#imately 6?/7 I 5&2 crises and I twin crises A a twin crises being a 5&2 crises that coincides with a banking crises.6:?7

37389378:. deglo#alisation
The favorable economic conditions that had prevailed up until /E/= were shattered by the first world war, and efforts to re-establish them in the /E:Cs were not successful. (everal countries rejoined the gold standard around /E:?. 5ut surplus countries didn)t "play by the rules",6:?76?:7 sterilising gold inflows to a much greater degree than had been the case in the pre-war period. 1eficit nations such as Hreat 5ritain found it harder to adjust by deflation as workers were more enfranchised and unions in particular were able to resist downwards pressure on wages. 1uring the Hreat 1epression most countries abandoned the gold standard, but imbalances remained an issue and international trade declined sharply. There was a return to mercantilist type "beggar thy neighbour" policies, with countries competitively devaluing their e#change rates, thus effectively competing to /=

e#port unemployment. There were appro#imately /B 5&2 crises and /? twin crises and a comparatively very high level of banking crises.!6:?7

378:937;3. "retton $oods

9ollowing 4orld 4ar II, the 5retton 4oods institutions the International .onetary 9und and 4orld 5ank! were set up to support an international monetary system designed to encourage free trade while also offering states options to correct imbalances without having to deflate their economies. 9i#ed but fle#ible e#change rates were established, with the system anchored by the dollar which alone remained convertible into gold. The 5retton 4oods system ushered in a period of high global growth, known as the Holden Age of ,apitalism, however it came under pressure due to the inability or unwillingness of governments to maintain effective capital controls 6?87 and due to instabilities related to the central role of the dollar. Imbalances caused gold to flow out of the @( and a loss of confidence in the @nited (tates ability to supply gold for all future claims by dollar holders resulted in escalating demands to convert dollars, ultimately causing the @( to end the convertibility of the dollar into gold, thus ending the 5retton 4oods system.6:?7 The /E=?AD/ era saw appro#imately := 5&2 crises and no twin crises for advanced economies, with emerging economies seeing /B 5&2 crises and just one twin crises.6:?7 .anmohan (ingh, currently 2. of India, showed that the challenges caused by imbalances can be an opportunity when he led his country)s successful economic reform programme after the /EE/ crisis. The 5retton 4oods system came to an end between /ED/ and /ED8. There were attempts to repair the system of fi#ed e#changed rates over the ne#t few years, but these were soon abandoned, as were determined efforts for the @.(. to avoid 5&2 imbalances. 2art of the reason was displacement of the previous dominant economic paradigm A Leynesianism A by the 4ashington ,onsensus, with economists and economics writers such as .urray 3othbard and .ilton 9riedman6?=7 arguing that there was no great need to be concerned about 5&2 issues. In the immediate aftermath of the 5retton 4oods collapse, countries generally tried to retain some control over their e#change rate by independently managing it, or by intervening in the foreign e#change market as part of a regional bloc, such as the (nake which formed in /ED/.6:E7 The /nake was a group of -uropean countries who tried to retain stable rates at least with each otherF the group eventually evolved into the -uropean -#change 3ate .echanism -3.! by /EDE. 9rom the mid-/EDCs however, and especially in the /EICs and early /EECs, many other countries followed the @( in liberalising controls on both their capital and current accounts, in adopting a somewhat rela#ed attitude to their balance of payments and in allowing the value of their currency to float relatively freely with e#change rates determined mostly by the market.6:?76:E7 1eveloping countries who chose to allow the market to determine their e#change rates would often develop si0eable current account deficits, financed by capital account inflows such as loans and investments,6??7 though this often ended in crises when investors lost confidence.6:?76?B7 6?D7 The fre'uency of crises was especially high for developing /?

economies in this era A from /ED8 to /EED emerging economies suffered ?D 5&2 crises and :/ twin crises. Typically but not always the panic among foreign creditors and investors that preceded the crises in this period was usually triggered by concerns over e#cess borrowing by the private sector, rather than by a government deficit. 9or advanced economies, there were 8C 5&2 crises and B banking crises. A turning point was the /EED Asian 5&2 ,risis, where unsympathetic responses by western powers caused policy makers in emerging economies to re-assess the wisdom of relying on the free marketF by /EEE the developing world as a whole stopped running current account deficits 6:D7 while the @.(. current account deficit began to rise sharply.6?I7 6?E7 This new form of imbalance began to develop in part due to the increasing practice of emerging economies, principally ,hina, in pegging their currency against the dollar, rather than allowing the value to freely float. The resulting state of affairs has been referred to as 5retton 4oods II.6//7 According to Alaistair ,han, "At the heart of the imbalance is ,hina)s desire to keep the value of the yuan stable against the dollar. @sually, a rising trade surplus leads to a rising value of the currency. A rising currency would make e#ports more e#pensive, imports less so, and push the trade surplus towards balance. ,hina circumvents the process by intervening in e#change markets and keeping the value of the yuan depressed."6BC7 According to economics writer .artin 4olf, in the eight years leading up to :CCD, "three-'uarters of the foreign currency reserves accumulated since the beginning of time have been piled up".6B/7 In contrast to the changed approach within the emerging economies, @( policy makers and economists remained relatively unconcerned about 5&2 imbalances. In the early to mid-/EECs, many free market economists and policy makers such as @.(. Treasury secretary 2aul &)%eill and 9ed ,hairman Alan Hreenspan went on record suggesting the growing @( deficit was not a major concern. 4hile several emerging economies had intervening to boost their reserves and assist their e#porters from the late /EICs, they only began running a net current account surplus after /EEE. This was mirrored in the faster growth for the @( current account deficit from the same year, with surpluses, deficits and the associated build up of reserves by the surplus countries reaching record levels by the early :CCCs and growing year by year. (ome economists such as Lenneth 3ogoff and .aurice &bstfeld began warning that the record imbalances would soon need to be addressed from as early as :CC/, joined by %ouriel 3oubini in :CC=, but it was not until about :CCD that their concerns began to be accepted by the majority of economists.6:D76B:7

5667 and later. post $ashington Consensus

(peaking after the :CCE H-:C <ondon summit, Hordon 5rown announced "the 4ashington ,onsensus is over".6B87 There is now broad agreement that large imbalances between different countries do matterF for e#ample mainstream @.(. economist ,. 9red 5ergsten has argued the @.(. deficit and the associated large inbound capital flows into the @.(. was one of the causes of the financial crisis of :CCDA:C/C.6:87 (ince the crisis, government intervention in 5&2 areas such as the imposition of capital controls or foreign e#change market intervention has become more common and in general attracts less disapproval from economists, international institutions like the I.9 and other governments.6B=7 6B?7 In :CCD, when the crises began, the global total of yearly 5&2 imbalances was J/BIC billion. &n the credit side, the biggest current account surplus was ,hina with appro#. J8B: billion, followed by Gapan at J:/8bn and Hermany at Q/I? billion, with oil /B

producing countries such as (audi Arabia also having large surpluses. &n the debit side, the @( had the biggest current account deficit at over J//CC billion, with the @L, (pain and Australia together accounting for close to a further J8CC billion.6B/7 4hile there have been warnings of future cuts in public spending, deficit countries on the whole did not make these in :CCE, in fact the opposite happened with increased public spending contributing to recovery as part of global efforts to increase demand.6BB7 The emphases has instead been on the surplus countries, with the I.9, -@ and nations such as the @.(., 5ra0il and 3ussia asking them to assist with the adjustments to correct the imbalances. 6BD7 6BI7 -conomists such as Hregor Irwin and 2hilip 3. <ane have suggested that increased use of pooled reserves could help emerging economies not to re'uire such large reserves and thus have less need for current account surpluses. 6BE7 4riting for the 9T in Gan :CCE, Hillian Tett says she e#pects to see policy makers becoming increasingly concerned about e#change rates over the coming year.6DC7 In Gune :CCE, &livier 5lanchard the chief economist of the I.9 wrote that rebalancing the world economy by reducing both si0eable surpluses and deficits will be a re'uirement for sustained recovery.6D/7 In :CCI and :CCE, there was some reduction in imbalances, but early indications towards the end of :CCE were that major imbalances such as the @.(. current account deficit are set to begin increasing again.6/C7 6D:7 Gapan had allowed her currency to appreciate through :CCE, but has only limited scope to contribute to the rebalancing efforts thanks in part to her aging population. The euro used by Hermany is allowed to float fairly freely in value, however further appreciation would be problematic for other members of the currency union such as (pain, Hreece and Ireland who run large deficits. Therefore Hermany has instead been asked to contribute by further promoting internal demand, but this hasn)t been welcomed by Herman officials.6BD7 ,hina has been re'uested to allow the renminbi to appreciate but until :C/C had refused, the position e#pressed by her premier 4en Giabao being that by keeping the value of the renmimbi stable against the dollar ,hina has been helping the global recovery, and that calls to let her currency rise in value have been motivated by a desire to hold back ,hina)s development.6BI7 After ,hina reported favourable results for her 1ecember :CCE e#ports however, the 9inancial Times reported that analysts are optimistic that ,hina will allow some appreciation of her currency around mid-:C/C.6D87 In April :C/C a ,hinese official signalled the government is considering allowing the renminbi to appreciate, 6D=7 but by .ay analysts were widely reporting the appreciation would likely be delayed due to the falling value of the -uro following the :C/C -uropean sovereign debt crisis.6D?7 ,hina announced the end of the renminbi)s peg to the dollar in Gune :C/CF the move was widely welcomed by markets and helped defuse tension over imbalances prior to the :C/C H-:C Toronto summit. *owever the renminbi remains managed and the new fle#ibility means it can move down as well as up in valueF two months after the peg ended the renminbi had only appreciated against the dollar by about C.IK.6DB7

/D

5y Ganuary :C//, the renminbi had appreciated against the dollar by 8.DK, which means it)s on track to appreciate in nominal terms by BK per year. As this reflects a real appreciation of /CK when ,hina)s higher inflation is accounted for, the @.(. Treasury once again declined to label ,hina a currency manipulator in their 9ebruary :C// report to ,ongress. *owever Treasury officials did advise the rate of appreciation was still too slow for the best interests of the global economy.6DD76DI7 In 9ebruary :C//, .oody)s analyst Alaistair ,han has predicted that despite a strong case for an upward revaluation, an increased rate of appreciation against the dollar is unlikely in the short term.6DE7 And as of 9ebruary :C/:, ,hina)s currency had been continuing to appreciate for a year and a half, while drawing remarkably little notice.6IC7 4hile some leading surplus countries including ,hina have been taking steps to boost domestic demand, these have not yet been sufficient to rebalance out of their current account surpluses. 5y Gune :C/C, the @.(. monthly current account deficit had risen back to J?C billion, a level not seen since mid-:CCI. 4ith the @( currently suffering from high unemployment and concerned about taking on additional debt, fears are rising that the @( may resort to protectionist measures.6I/7 Competitive devaluation after 5667 5y (eptember :C/C, international tensions relating to imbalances had further increased. 5ra0il)s finance minister Huido .antega declared that an "international currency war" has broken out, with countries competitively trying to devalue their currency so as to boost e#ports. 5ra0il has been one of the few major economies lacking a reserve currency to abstain from significant currency intervention, with the real rising by :?K against the dollar since Ganuary :CCE. (ome economists such as 5arry -ichengreen have argued that competitive devaluation may be a good thing as the net result will effectively be e'uivalent to e#pansionary global monetary policy. &thers such as .artin 4olf saw risks of tensions further escalating and advocated that coordinated action for addressing imbalances should be agreed on at the %ovember H:C summit.6/D76I:76I87 ,ommentators largely agreed that little substantive progress was made on imbalances at the %ovember :C/C H:C. An I.9 report released after the summit warned that without additional progress there is a risk of imbalances appro#imately doubling to reach precrises levels by :C/=.6I=7

<,change rate
In finance, an e,change rate also known as a foreign-e,change rate, fore, rate, &= rate or gio! between two currencies is the rate at which one currency will be e#changed for another. It is also regarded as the value of one countryRs currency in terms of another currency.6/7 9or e#ample, an interbank e#change rate of E/ Gapanese yen G2S, T! to the @nited (tates dollar @(J! means that TE/ will be e#changed for each @(J/ or that @(J/ will be e#changed for each TE/. -#change rates are determined in the foreign e#change market,6:7 which is open to a wide range of different types of buyers and sellers where currency trading is continuous+ := hours a day e#cept weekends, i.e. trading from :C+/? H.T on (unday until ::+CC H.T 9riday. The spot e,change rate refers to the current /I

e#change rate. The forward e,change rate refers to an e#change rate that is 'uoted and traded today but for delivery and payment on a specific future date. In the retail currency e#change market, a different #u/ing rate and selling rate will be 'uoted by money dealers. .ost trades are to or from the local currency. The buying rate is the rate at which money dealers will buy foreign currency, and the selling rate is the rate at which they will sell the currency. The 'uoted rates will incorporate an allowance for a dealer)s margin or profit! in trading, or else the margin may be recovered in the form of a "commission" or in some other way. 1ifferent rates may also be 'uoted for cash usually notes only!, a documentary form such as traveler)s che'ues! or electronically such as a credit card purchase!. The higher rate on documentary transactions is due to the additional time and cost of clearing the document, while the cash is available for resale immediately. (ome dealers on the other hand prefer documentary transactions because of the security concerns with cash.

1etail e,change mar%et

2eople may need to e#change currencies in a number of situations. 9or e#ample, people intending to travel to another country may buy foreign currency in a bank in their home country, where they may buy foreign currency cash, traveler)s che'ues or a travel-card. 9rom a local money changer they can only buy foreign cash. At the destination, the traveler can buy local currency at the airport, either from a dealer or through an AT.. They can also buy local currency at their hotel, a local money changer, through an AT., or at a bank branch. 4hen they purchase goods in a store and they do not have local currency, they can use a credit card, which will convert to the purchaser)s home currency at its prevailing e#change rate. If they have traveler)s che'ues or a travel card in the local currency, no currency e#change is necessary. Then, if a traveler has any foreign currency left over on their return home, they may want to sell it, which they may do at their local bank or money changer. The e#change rate as well as fees and charges can vary significantly on each of these transactions, and the e#change rate can vary from one day to the ne#t. There are variations in the 'uoted buying and selling rates for a currency between foreign e#change dealers and forms of e#change, and these variations can be significant. 9or e#ample, consumer e#change rates used by ;isa and .aster,ard offer the most favorable e#change rates available, according to a ,urrency -#change (tudy conducted by ,ard*ub.com.687 This studied consumer banks in the @.(., and Travele#, showed that the credit card networks save travelers about IK relative to banks and roughly /?K relative to airport companies.687 A currency pair is the 'uotation of the relative value of a currency unit against the unit of another currency in the foreign e#change market. The 'uotation -@3/@(1 /.:?CC means that / -uro is e#changed for /.:?CC @( dollars. *ere, -@3 is called the "base currency" or "unit currency", while @(1 is called the "term currency" or "price currency". There is a market convention that determines which is the base currency and which is the term currency. In most parts of the world, the order is+ -@3 A H52 A A@1 A %M1 A @(1 A others. Accordingly, a conversion from -@3 to A@1, -@3 is the base currency, /E

A@1 is the term currency and the e#change rate indicates how many Australian dollars would be paid or received for / -uro. ,yprus and .alta which were 'uoted as the base to the @(1 and others were recently removed from this list when they joined the -uro0one. In some areas of -urope and in the non-professional market in the @L, -@3 and H52 are reversed so that H52 is 'uoted as the base currency to the euro. In order to determine which is the base currency where both currencies are not listed i.e. both are "other"!, market convention is to use the base currency which gives an e#change rate greater than /.CCC. This avoids rounding issues and e#change rates being 'uoted to more than = decimal places. There are some e#ceptions to this rule e.g. the Gapanese often 'uote their currency as the base to other currencies. Puotes using a country)s home currency as the price currency e.g., -@3 C.D8?8=: O @(1 /.CC in the -uro0one! are known as direct 'uotation or price 'uotation from that country)s perspective!6=7 and are used by most countries. Puotes using a country)s home currency as the unit currency e.g., @(1 /.8?EE/ O -@3 /.CC in the -uro0one! are known as indirect 'uotation or 'uantity 'uotation and are used in 5ritish newspapers and are also common in Australia, %ew Mealand and the -uro0one. @sing direct 'uotation, if the home currency is strengthening i.e., appreciating, or becoming more valuable! then the e#change rate number decreases. ,onversely if the foreign currency is strengthening, the e#change rate number increases and the home currency is depreciating. .arket convention from the early /EICs to :CCB was that most currency pairs were 'uoted to = decimal places for spot transactions and up to B decimal places for forward outrights or swaps. The fourth decimal place is usually referred to as a "pip"!. An e#ception to this was e#change rates with a value of less than /.CCC which were usually 'uoted to ? or B decimal places. Although there is no fi#ed rule, e#change rates with a value greater than around :C were usually 'uoted to 8 decimal places and currencies with a value greater than IC were 'uoted to : decimal places. ,urrencies over ?CCC were usually 'uoted with no decimal places e.g. the former Turkish <ira!. e.g. H52&.3 + C.DB?=8: - + /.==8B - -@3G2S + /B?.:E!. In other words, 'uotes are given with ? digits. 4here rates are below /, 'uotes fre'uently include ? decimal places. In :CC? 5arclays ,apital broke with convention by offering spot e#change rates with ? or B decimal places on their electronic dealing platform.6?7 The contraction of spreads the difference between the bid and offer rates! arguably necessitated finer pricing and gave the banks the ability to try and win transaction on multibank trading platforms where all banks may otherwise have been 'uoting the same price. A number of other banks have now followed this system.

<,change rate regime

-ach country, through varying mechanisms, manages the value of its currency. As part of this function, it determines the e#change rate regime that will apply to its currency. 9or e#ample, the currency may be free-floating, pegged or fi#ed, or a hybrid. :C

If a currency is free-floating, its e#change rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand. -#change rates for such currencies are likely to change almost constantly as 'uoted on financial markets, mainly by banks, around the world. A movable or adjustable peg system is a system of fi#ed e#change rates, but with a provision for the revaluation usually devaluation! of a currency. 9or e#ample, between /EE= and :CC?, the ,hinese yuan renminbi 3.5! was pegged to the @nited (tates dollar at 3.5 I.:DBI to J/. ,hina was not the only country to do thisF from the end of 4orld 4ar II until /EBD, 4estern -uropean countries all maintained fi#ed e#change rates with the @( dollar based on the 5retton 4oods system. 6/7 5ut that system had to be abandoned in favor of floating, market-based regimes due to market pressures and speculations in the /EDCs. (till, some governments strive to keep their currency within a narrow range. As a result, currencies become over-valued or under-valued, leading to e#cessive trade deficits or surpluses.

&luctuations in e,change rates

A market-based e#change rate will change whenever the values of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply this does not mean people no longer want money, it just means they prefer holding their wealth in some other form, possibly another currency!. Increased demand for a currency can be due to either an increased transaction demand for money or an increased speculative demand for money. The transaction demand is highly correlated to a country)s level of business activity, gross domestic product H12!, and employment levels. The more people that are unemployed, the less the public as a whole will spend on goods and services. ,entral banks typically have little difficulty adjusting the available money supply to accommodate changes in the demand for money due to business transactions. (peculative demand is much harder for central banks to accommodate, which they influence by adjusting interest rates. A speculator may buy a currency if the return that is the interest rate! is high enough. In general, the higher a country)s interest rates, the greater will be the demand for that currency. It has been argued6by whom07 that such speculation can undermine real economic growth, in particular since large currency speculators may deliberately create downward pressure on a currency by shorting in order to force that central bank to buy their own currency to keep it stable. 4hen that happens, the speculator can buy the currency back after it depreciates, close out their position, and thereby take a profit.!6citation needed7 9or carrier companies shipping goods from one nation to another, e#change rates can often impact them severely. Therefore, most carriers have a ,A9 charge to account for these fluctuations.6B76D7 :/

Purchasing power of currenc/

The real e,change rate 3-3! is the purchasing power of a currency relative to another at current e#change rates and prices. It is the ratio of the number of units of a given country)s currency necessary to buy a market basket of goods in the other country, after ac'uiring the other country)s currency in the foreign e#change market, to the number of units of the given country)s currency that would be necessary to buy that market basket directly in the given country . Thus the real e#change rate is the e#change rate times the relative prices of a market basket of goods in the two countries. 9or e#ample, the purchasing power of the @( dollar relative to that of the euro is the dollar price of a euro dollars per euro! times the euro price of one unit of the market basket euros/goods unit! divided by the dollar price of the market basket dollars per goods unit!, and hence is dimensionless. This is the e#change rate e#pressed as dollars per euro! times the relative price of the two currencies in terms of their ability to purchase units of the market basket euros per goods unit divided by dollars per goods unit!. If all goods were freely tradable, and foreign and domestic residents purchased identical baskets of goods, purchasing power parity 222! would hold for the e#change rate and H12 deflators price levels! of the two countries, and the real e#change rate would always e'ual /. The rate of change of this real e#change rate over time e'uals the rate of appreciation of the euro the positive or negative percentage rate of change of the dollars-per-euro e#change rate! plus the inflation rate of the euro minus the inflation rate of the dollar.

"ilateral vs> effective e,change rate

5ilateral e#change rate involves a currency pair, while an effective e#change rate is a weighted average of a basket of foreign currencies, and it can be viewed as an overall measure of the country)s e#ternal competitiveness. A nominal effective e#change rate %--3! is weighted with the inverse of the asymptotic trade weights. A real effective e#change rate 3--3! adjusts %--3 by appropriate foreign price level and deflates by the home country price level. ,ompared to %--3, a H12 weighted effective e#change rate might be more appropriate considering the global investment phenomenon.

?ncovered interest rate parit/

@ncovered interest rate parity @I32! states that an appreciation or depreciation of one currency against another currency might be neutrali0ed by a change in the interest rate differential. If @( interest rates increase while Gapanese interest rates remain unchanged then the @( dollar should depreciate against the Gapanese yen by an amount that prevents arbitrage in reality the opposite, appreciation, 'uite fre'uently happens in the short-term, as e#plained below!. The future e#change rate is reflected into the forward e#change rate stated today. In our e#ample, the forward e#change rate of the dollar is said to be at a discount because it buys fewer Gapanese yen in the forward rate than it does in the spot rate. The yen is said to be at a premium.

::

@I32 showed no proof of working after the /EECs. ,ontrary to the theory, currencies with high interest rates characteristically appreciated rather than depreciated on the reward of the containment of inflation and a higher-yielding currency.

"alance of pa/ments model

The balance of payments model holds that foreign e#change rates are at an e'uilibrium level if they produce a stable current account balance. A nation with a trade deficit will e#perience a reduction in its foreign e#change reserves, which ultimately lowers depreciates! the value of its currency. A cheaper undervalued! currency renders the nation)s goods e#ports! more affordable in the global market while making imports more e#pensive. After an intermediate period, imports will be forced down and e#ports to rise, thus stabili0ing the trade balance and bring the currency towards e'uilibrium. <ike purchasing power parity, the balance of payments model focuses largely on tradeable goods and services, ignoring the increasing role of global capital flows. In other words, money is not only chasing goods and services, but to a larger e#tent, financial assets such as stocks and bonds. Their flows go into the capital account item of the balance of payments, thus balancing the deficit in the current account. The increase in capital flows has given rise to the asset market model.

sset mar%et model

The increasing volume of trading of financial assets stocks and bonds! has re'uired a rethink of its impact on e#change rates. -conomic variables such as economic growth, inflation and productivity are no longer the only drivers of currency movements. The proportion of foreign e#change transactions stemming from cross border-trading of financial assets has dwarfed the e#tent of currency transactions generated from trading in goods and services.6I7 The asset market approach views currencies as asset prices traded in an efficient financial market. ,onse'uently, currencies are increasingly demonstrating a strong correlation with other markets, particularly e'uities. <ike the stock e#change, money can be made or lost! on trading by investors and speculators in the foreign e#change market. ,urrencies can be traded at spot and foreign e#change options markets. The spot market represents current e#change rates, whereas options are derivatives of e#change rates.

Manipulation of e,change rates

A country may gain an advantage in international trade if it manipulates the market for its currency to artificially keep its value low, typically by the national central bank engaging in open market operations. It has been argued by @( legislators that the 2eople)s 3epublic of ,hina has been acting in that way over a long period of time.6E7 In :C/C, other nations, including Gapan and 5ra0il, attempted to devalue their currency in the hopes of reducing the cost of e#ports and thus bolstering their ailing economies. A :8

low undervalued! e#change rate lowers the price of a country)s goods for consumers in other countries but raises the price of goods, especially imported goods, for consumers in the manipulating country.6/C7

(cean liner
An ocean liner is a ship designed to transport people from one seaport to another along regular long-distance maritime routes according to a schedule. <iners may also carry cargo or mail, and may sometimes be used for other purposes e.g., for pleasure cruises or as hospital ships!. ,argo vessels running to a schedule are sometimes called liners.6/7 The category does not include ferries or other vessels engaged in short-sea trading, nor dedicated cruise ships where the voyage itself, and not transportation, is the prime purpose of the trip. %or does it include tramp steamers, even those e'uipped to handle limited numbers of passengers. (ome shipping companies refer to themselves as "lines" and their container ships, which often operate over set routes according to established schedules, as "liners". &cean liners are usually strongly built with a high freeboard to withstand rough seas and adverse conditions encountered in the open ocean. Additionally, they are often designed with thicker hull plating than is found on cruise ships, and have large capacities for fuel, food and other consumables on long voyages. As of :C/:, 3.( 1ueen 2ary ( was the only ship still in service as an ocean liner. &cean liners were the primary mode of intercontinental travel for over a century, from the mid-/Eth century until they began to be supplanted by airliners in the late /EBCs. In addition to passengers, liners carried mail and cargo. (hips contracted to carry 5ritish 3oyal .ail used the designation 3.(. <iners were also the preferred way to move gold The busiest route for liners was on the %orth Atlantic with ships travelling between -urope and %orth America. It was on this route that the fastest, largest and most advanced liners travelled. 5ut while in contemporary popular imagination the term "ocean liners" evokes these transatlantic superliners, most ocean liners historically were mid-si0ed vessels which served as the common carriers of passengers and freight between nations and among mother countries and their colonies and dependencies in the pre-jet age. (uch routes included -urope to African and Asian colonies, -urope to (outh America, and migrant traffic from -urope to %orth America in the /Eth and first two decades of the :Cth centuries, and to ,anada and Australia after the (econd 4orld 4ar. (hipping lines are companies engaged in shipping passengers and cargo, often on established routes and schedules. 3egular scheduled voyages on a set route are called "line voyages" and vessels passenger or cargo! trading on these routes to a timetable are called liners. The alternative to liner trade is "tramping" whereby vessels are notified on an ad-hoc basis as to the availability of a cargo to be transported. In older usage, "liner" also referred to ships of the line, that is, line-of-battle ships, but that usage is now rare.! The term "ocean liner" has come to be used interchangeably with "passenger liner", although it can refer to a cargo liner or cargo-passenger liner. :=

5eginning at the advent of the Get Age, where transoceanic ship service declined, a gradual transition from passenger ships as mean of transportation to nowadays cruise ships started.687 In order for ocean liners to remain profitable, cruise lines have modified some of them to operate on cruise routes, such as the 1ueen $li!abeth ( and (( &rance. ,ertain characteristics of older ocean liners made them unsuitable for cruising, such as high fuel consumption, deep draught preventing them from entering shallow ports, and cabins often windowless! designed to ma#imi0e passenger numbers rather than comfort. The Italian <ine)s (( 2ichelangelo and (( 3affaello, the last ocean liners to be built primarily for crossing the %orth Atlantic, could not be converted economically and had short careers.6=7

Histor/
In /I/I, the 5lack 5all <ine, with a fleet of sailing ships, offered the first regular passenger service with emphasis on passenger comfort, from -ngland to the @nited (tates. 9rom the early /Eth century, steam engines began to appear in ships, but initially they were inefficient and offered little advantage over sailing ships. The clipper domination was challenged when (( 4reat 'estern, designed by railway engineer Isambard Lingdom 5runel,6?7 began its first Atlantic service in /I8D. It took /? days to cross the Atlantic,6B7 as compared with two months by sail-powered ships. @nlike the clippers, steamers offered a consistent speed and the ability to keep to a schedule. The early steamships still had sails as well, though, as engines at this time had very inefficient consumption of fuel. *aving sails enabled vessels like the 4reat 'estern to take advantage of favourable weather conditions and minimise fuel consumption. In /I=C, ,unard <ineRs 3.( 5ritannia began its first regular passenger and cargo service by a steamship, sailing from <iverpool to 5oston.6D7 1espite some advantages offered by the steamships, clippers remained dominant. In /I=D, the (( 4reat 5ritain became the first iron-hulled screw-driven ship to cross the Atlantic.6I7 .ore efficient propellers began to replace the paddle wheels used by earlier ocean liners. In /IDC, the 4hite (tar <ineRs 3.( 6ceanic set a new standard for ocean travel by having its first-class cabins amidships, with the added amenity of large portholes, electricity and running water.6E7 The si0e of ocean liners increased from /IIC to meet the needs of immigration to the @nited (tates and Australia. 3.( 7mbria6/C7 and her sister ship 3.( $truria were the last two ,unard liners of the period to be fitted with au#iliary sails. 5oth ships were built by Gohn -lder > ,o. of Hlasgow, (cotland, in /II=. They were record breakers by the standards of the time, and were the largest liners then in service, plying the <iverpool to %ew Sork route. (( 6phir was a BI/=-ton6//7 steamship owned by the &rient (teamship ,o., and was fitted with refrigeration e'uipment. It plied the (ue0 ,anal route from -ngland to Australia during the /IECs, up until the years leading to 4orld 4ar I, when she was converted to an armed merchant cruiser. The period between the end of the /Eth century and 4orld 4ar II is considered the "golden age" of ocean liners. 1riven by strong demand created by -uropean emigration :?

to the Americas, international competition between passenger lines and a new emphasis on comfort, shipping companies built increasingly larger and faster ships.6citation needed7 ,anadian 2acific 3ailway ,23! became one of the largest transportation systems in the world, combining ships and railways operating from ,anada. In /IE/, the ,23 shipping division began its first 2acific operation. In /EC8, ,23 began its first Atlantic service because of the rising migration of -uropeans to western ,anada, as the result of free land offered by the ,anadian government.6citation needed7 (ince the /I8Cs, passenger liners had unofficially been competing for the honour of making the fastest %orth Atlantic crossing. This honour came to be known as the 5lue 3ibandF in /IED, Hermany took the award with a series of new ocean liners, starting with (( 8aiser 'ilhelm der 4rosse. In /EC?, the 5ritish ,unard <ine fitted 3.( "armania, with steam turbines, which then outperformed its nearly-identical sister, 3.( "aronia, which was powered by 'uadruple-e#pansion steam engines. At the time, these were the largest ships in the ,unard fleet, and the use of the different propulsion methods in otherwise similar ships allowed the company to evaluate the merits of both.6/:7 The engines in the "armania were successful and, conse'uently, in /ECD, ,unard introduced the much larger 3.( 9usitania and 3.( 2auretania, both powered by steam turbines. 2auretania won the 5lue 3iband and held it for an astonishing :C years.6/87 ,unard)s dominance of the 5lue 3iband did not keep other lines from competing in terms of si0e and lu#ury. In /E/C, 4hite (tar <ine launched 3.( 6lympic,6/=7 the first of a trio of =?,CCC plus gross ton liners, along with 3.( Titanic and *.*( 5ritannic. These ships were almost /?,CCC tonnes larger and /CC feet 8C m! longer than the 9usitania and the 2auretania. <ike most other 4hite (tar <iners, these three ships were born of a special effort by the line to attract more immigrants by treating them with respect and making their crossings pleasurable. *amburg-America <ine also ordered three giant ships, (( %mperator, (( Vaterland and (( 5ismarck, all over ?/,?CC gross tons. %mperator was launched in /E/:, and 5ismarck would be the largest ship in the world until /E8?. These ships did little or no service with *amburg-America before 4orld 4ar I. After the war, they were awarded as war reparations and given to 5ritish and American lines.6/?7 The surge in ocean liner si0e outpaced the shipping regulations. In /E/:, the Titanic sank after hitting an iceberg, with more than /,?CC fatalities. A factor contributing to the high loss of life was that there were not enough lifeboats for everyone. After the Titanic disaster, regulations were revised to re'uire all ocean liners to carry enough lifeboats for all passengers and crew. In addition, the International Ice 2atrol was established to monitor the busy %orth Atlantic shipping lanes for icebergs.6/B7 @ntil the /E:Cs, most shipping lines relied heavily on emigration for passengersF thus, they were hard hit when the @nited (tates ,ongress introduced a bill to limit immigration into the @nited (tates. As a result, many ships took on cruising,6/D7 and the least e#pensive cabins were reconfigured from third-class to tourist-class. To make matters worse, the Hreat 1epression put many shipping lines into bankruptcy. 1espite the harsh economic conditions, a number of companies continued to build larger and faster ships. In /E:E, the Herman ships (( 5remen and (( $uropa beat the crossing :B

record set by 2auretania :C years earlier with an average speed of almost :I knots ?: km/hF 8: mph!. The ships used bulbous bows and steam turbines to reach these high speeds while maintaining economical operating costs. In /E88, the Italian <ine)s ?/,/CCton ocean liner (( 3ex, with a time of four days and thirteen hours,6/I7 captured the westbound 5lue 3iband, which she held for two years. In /E8?, 9rench liner (( .ormandie used a revolutionary new hull design and powerful turbo-electric transmission to take the 5lue 3iband from the 3ex. 1ue to poor economic conditions, the 5ritish government amalgamated the ,unard <ine and 4hite (tar <ines. The newly merged company countered with liners 3.( 1ueen 2ary and 3.( 1ueen $li!abeth. 1ueen 2ary held the 5lue 3iband in /E8B-8D and from /E8I-?:.6/E7 In 4orld 4ar II many liners were used as troop ships. %otable ocean liners, such as 1ueen 2ary, #quitania, "ap #rcona, 9aconia, 1ueen $li!abeth, and 6rontes all helped transport troops. 4hile some ocean liners survived the war, many others were lost. The post-44II era was a brief but busy period. %otable ships included the fastest transatlantic liner ever built, (( 7nited /tates, which, in /E?:, bested the records set by the 1ueen 2ary to become the holder of the 5lue 3iband, a designation it retains to this day.6:C7 Also significant was the /EB/-built (( &rance later renamed .orway! which held the record for the longest passenger ship from when she entered service in /EB/, until the launch of 3.( 1ueen 2ary ( in :CC8. Australian government-sponsored immigration resulted in a busy trade between -urope and Australia, producing such notable ships as (( 6riana6:/7 and (( "anberra.6::7 These two ships, operating on the 2>&-&rient <ines service, were the largest, fastest and last liners built for the Australian route.

)ecline of long-distance line vo/ages

5efore 4orld 4ar II, competition from passenger aircraft had not been a large threat to ocean liners. 4orld 4ar II accelerated the development of large, long-distance aircraft. 9our-engined bombers, such as the Avro <ancaster and 5oeing 5-:E (uperfortress, with their long range and massive carrying capacity, were a natural prototype for a ne#tgeneration airliner. Get aircraft technology also accelerated after the development of jet aircraft for military use in 4orld 4ar II. In /E?8, the 1e *avilland ,omet became the first commercial jet airlinerF the (ud Aviation ,aravelle, 5oeing DCD and 1ouglas 1,-I followed, and much long-distance travel was done by air. The Italian <ine)s (( 2ichelangelo and (( 3affaello,6=7 launched in /EB: and /EB8, were two of the last ocean liners to be built primarily for liner service across the %orth Atlantic. ,unard)s transatlantic liner, 1ueen $li!abeth (, was also used as a cruise ship.687 5y the early /EDCs, many passenger ships continued their service in cruising. 5y the first decade of the :/st century, only a few former ocean liners were still sailing, while others, like 1ueen 2ary, were preserved as museums or floating hotels. After the retirement of the 1ueen $li!abeth ( in :CCI, the only ocean liner in service was 1ueen 2ary (, used for both point-to-point line voyages and for cruising.

:D

!he 53st centur/

In :C/:, Australian businessman, ,live 2almer, announced his plans to construct a modern-day replica of the famous 3.( Titanic.6:87 To be named Titanic %%, 2almer)s vision is to create a trans-Atlantic ocean liner that closely mimics her namesake. 2almer, through his new venture, 5lue (tar <ine, and with the help of the 9innish marine engineering firm, 1eltamarin, have commenced the process of designing the ocean liner.
6:=7

t war
In 4orld 4ar I, ocean liners played a major role. <arge ocean liners, such as 2auretania and 6lympic, were used as troopships and hospital ships, while smaller ocean liners were converted to armed merchant cruisers. 5ritannic, sister ship to Titanic and 6lympic, never served on the liner trade for which she was built. Instead, she entered war service as a hospital ship as soon as she was completed, and lasted a year before being sunk by a mine.6:?7 &ther liners were converted to innocent-looking armed P-ships, in order to entrap submarines. In /E/?, 9usitania, still in service as a civilian passenger vessel, was torpedoed with many casualties by a Herman @-boat. In 4orld 4ar II the three worst disasters were the loss of the ,unarder 9ancastria in /E=C off (aint-%a0aire to Herman bombing while attempting to evacuate troops of the 5ritish -#peditionary 9orce from 9rance, with the loss of more than 8,CCC livesF the sinking of 'ilhelm 4ustloff with more than E,CCC lives lostF and the sinking of &cean liners were also used in 4orld 4ar II as troopships. .ormandie caught fire, capsi0ed and sank in %ew Sork in /E=: while being converted for troop duty. .any of the superliners of the )twenties and )thirties were victims of @-boats, mines or enemy aircraft. $mpress of 5ritain was attacked by Herman planes, then torpedoed by a @-boat when tugs tried to tow her to safety.6:B7 (he was the largest 5ritish ocean liner to sink during 4orld 4ar II. In /E=/, Hermany)s speed 'ueen, 5remen, fell victim to an arsonist, believed to be a disgruntled crew member, and became a total loss. Italy)s giants, 3ex and "onte di /avoia, were respectively destroyed by the 3oyal Air 9orce and the retreating Herman forces. The @nited (tates lost the American 2resident <ines vessel President "oolidge when she steamed into an Allied mine in the (outh 2acific. %o shipping line was left untouched by 4orld 4ar II. In /EI:, during the 9alklands 4ar, three ships that were either active or former liners were re'uisitioned for war service by the 5ritish Hovernment. The liners 1ueen $li!abeth (6:D7 and "anberra, were re'uisitioned from ,unard and 2>& to serve as troopships, carrying 5ritish Army personnel to Ascension Island and the 9alkland Islands to recover the 9alklands from the invading Argentine forces. The 2>& educational cruise ship and former 5ritish India (team %avigation ,ompany liner 7ganda was re'uisitioned as a hospital ship and, after the war, served as a troopship until the 3A9 .ount 2leasant station was built at (tanley, which could handle trooping flights.6:I7

:I

Safet/ and relia#ilit/

.any ocean liners have been lost in peacetime. Titanic sank on her maiden voyage from 5ritain to the @nited (tates in /E/:, after hitting an iceberg, with the loss of /,?:8 livesF her name has entered the -nglish language as an archetypical catastrophe. In /E/=, $mpress of %reland sank in the (aint <awrence 3iver with /,C/: lives lost. 5etween the world wars, (( <)Atlanti'ue burned in the ,hannel in /E88 and 2orro "astle /E8C! burned off the coast of %ew Gersey in /E8=. After 4orld 4ar II and resumption of the transatlantic ferry, Italian liner #ndrea :oria, although e'uipped with radar, sank after colliding with /tockholm in heavy fog in /E?B on the Italian vessel)s approach to %ew Sork. .any ships known for reliability, comfort, and decades of service, became particularly popular with passengers. ,unard <ine)s 2auretania /ECB! and #quitania were considered the finest liners of their time, while superliners, like .ormandie and 1ueen 2ary, became symbols of national pride and an important part of western civili0ation with influences in design, technology, popular culture and standards of international travel.

Survivors
&f the pre-4orld 4ar II ocean liners, four survive today. 3.( 1ueen 2ary /E8=! was preserved after her retirement in /EBD as a hotel and museum in <ong 5each, ,alifornia. The Gapanese ocean liner ;ikawa 2aru /E:E!, has been preserved in %aka-ku, Sokohama, Gapan, as a museum ship, since /EB/. (( Hreat 5ritain, was preserved in 5ristol, -ngland.6:E7 .; 1oulos is awaiting preservation in (ingapore.68C768/7 3emaining modern post-war! ocean liners that are preserved are+ (( 7nited /tates /E?:!, docked in 2hiladelphia, since /EEBF (( 3otterdam /E?I!, moored in 3otterdam as a museum and hotel, since :CCIF68:7 Veronica /EBB! former .( 8ungsholm!, which was converted into a floating hotel in 1u'm, &man, in :C/:F6887 and 1ueen $li!abeth ( /EBD!, laid up in 2ort 3ashid, since :CCE. In the summer of :C/8 one former ocean liner remained in service as a cruise ship, .( 2arco Polo /EB?! former .( #lexandr Pushkin!,68=7 while .( #!ores, originally .( /tockholm and later the cruise ship #thena, was being refurbished for future service.
68?7

"enefits of 'iner Shipping

International liner shipping is a sophisticated network of regularly scheduled services that transports goods from anywhere in the world to anywhere in the world at low cost and with greater energy efficiency than any other form of international transportation.

<fficienc/
:E

<iner shipping is the most efficient mode of transport for goods. In one year, a single large containership might carry over :CC,CCC container loads of cargo. 4hile individual ships vary in si0e and carrying capacity, many container ships can transport up to I,CCC containers of goods and products on a single voyage. (imilarly, on a single voyage, some car carrier ships can handle D,BCC cars. It would re'uire hundreds of freight aircraft, many miles of rail cars, and fleets of trucks to carry the goods that can fit on one large liner ship. <earn more about the efficiency of liner shipping.

Glo#al <conomic <ngine

<iner shipping connects countries, markets, businesses and people, allowing them to buy and sell goods on a scale not previously possible. Today, the liner shipping industry transports goods representing appro#imately one-third of the total value of global trade. Additionally, as a major global enterprise in its own right, the international shipping industry is responsible for millions of e#isting jobs and plays a crucial role in stimulating new jobs. It contributes hundreds of billions of dollars to the global economy annually thereby increasing gross domestic product in countries throughout the world. .oreover, as the lifeblood of global economic vitality, ocean shipping contributes significantly to international stability and security. <earn more.

'ow <nvironmental Impact

&cean shipping is the most carbon-efficient mode of transportation and produces fewer grams of e#haust gas emissions for each ton of cargo transported than air, rail, or road transport. In addition, new International .aritime &rgani0ation regulations establish strict standards for vessels) %&#, (&#, and particulate matter emissions. Also, the millions of containers that are used around the world are now EI percent recyclable.

!ramp trade
A ship engaged in the tramp trade is one which does not have a fi#ed schedule or published ports of call. As opposed to freight liners, tramp ships trade on the spot market with no fi#ed schedule or itinerary/ports-of-call s!. A steamship engaged in the tramp trade is sometimes called a tramp steamerF the similar terms tramp freighter and tramper are also in use. The term is derived from the 5ritish meaning of "tramp" as itinerant beggar or vagrantF in this conte#t it is first documented in the /IICs, along with "ocean tramp" at the time many sailing vessels engaged in irregular trade as well!.

Histor/
The tramp trade first took off in -ngland around the mid /Eth century. The dependability and timeliness of steam ships was found to be more cost-effective than sail. ,oal was needed for ships) boilers, and the demand created a business opportunity for moving large amounts of best 4elsh coal6/7 to various seaports in -ngland. 4ithin a few years tramp ships became the workhorses of trade, transporting coal and finished products from -nglish cities to the rest of the world. 8C

The si0e of tramp ships remained relatively constant from /ECC to /E=C, at about D,CCC to /C,CCC deadweight tons dwt.!. 1uring 4orld 4ar II, the @nited (tates created the <iberty (hipF a single design that could be used to carry just about anything, which weighed in at /C,?CC dwt.6/7 The @.(. produced :DCI <iberty (hips and they were used on every international trade route.6/76:7 After 4orld 4ar II, economies of scale took over and the si0e of tramp ships e#ploded to keep up with a booming supply and demand cycle. 1uring this time the bulk carrier became the tramp of choice for many owners and operators. The bulk carrier was designed to carry coal, grain, and ore, which gave it more fle#ibility and could service more ports than some of its ancestors, which only carried a single commodity. Today the tramp trade includes all types of vessels, from bulk carriers to tankers. -ach can be used for a specific market, or ships can be combined like the oil, bulk, ore carriers to accommodate many different markets depending where the ship is located and the supply and demand of the area. Tramp ships often carry with them their own gear booms, cranes, derricks! in case the ne#t port lacks the proper e'uipment for loading or discharging cargo.687

Contract of ffreightment
A contract of affreightment is a contract between a ship-owner and another person called the charterer!, in which the ship-owner agrees to carry goods for the charterer in the ship, or to give the charterer the use of the whole or part of the ship)s cargo-carrying space for the carriage of goods on a specified voyage or voyages or for a specified time. The charterer agrees to pay a specified price, called freight, for the carriage of the goods or the use of the ship. A ship may be let, like a house, to a person who takes possession and control of it for a specified term. The person who hires a ship in this way occupies during the specified time the position of ship-owner. The contract under which a ship is so let may be called a charter-party$but it is not, properly speaking, a contract of affreightment, and is mentioned here only to clarify the distinction between a charter-party of this kind, which is sometimes called a demise of the ship, and a charter-party that is a contract of affreightment.

1ules of law
The law with regard to the contract of affreightment is, of course, a branch of the general law of contract. The rights and obligations of the ship-owner and the freighter depend, as in the case of all parties to contracts, upon the terms of the agreement entered into between them. The law, however, interferes to some e#tent in regulating the effect to be given to contracts. ,ertain contracts are forbidden by the law, and being illegal are therefore incapable of enforcement. The most important e#ample of illegality in the case of contracts of affreightment is when the contract involves trading with an enemy.

8/

The law interferes again with regard to the interpretation of the contract. The meaning of words in the contract, or$in other words$its construction, when a dispute arises about it, are determined by a judge or court. The result is that certain more-or-less common clauses in affreightment contracts have come before the courts, and decisions in these cases are treated practically$though perhaps not logically$as rules of law that determine the meaning of certain common e#pressions in shipping contracts. The law acts in a third way$by laying down rules that regulate rights of the parties in the absence of an e#press contractual stipulation that such rules cover. This is done either by statutory enactment, as by 2art ;III of the .erchant (hipping Act /IC=, which deals with the liability of ship-owners$or by established rules of common law, as, for instance, the rule that the common carrier is absolutely responsible for the safe delivery of the goods carried, unless prevented by an act of Hod or enemies of the Pueen. These rules of law, whether common law or statute law, that regulate the obligations of carriers of goods by sea, are of most importance in cases in which there is an affreightment without any written agreement. It is, therefore, convenient to consider first cases of this kind where there is no e#press agreement, oral or written, e#cept as to the freight and destination of the goods, and where, conse'uently, the rights and obligations of the parties as to all other terms of carriage depend wholly upon the rules of law, remembering always that these same rules apply when there is a written contract, e#cept insofar as they are 'ualified or negated by the terms of such contract.

In default of e,press contract

The rules of the common or ancient customary -nglish law with regard to the carriage of goods were no doubt first considered by the courts and established with regard to the carriage of goods by common carriers on land. These rules were applied to common carriers by water, and it may now be taken to be the general rule that ship-owners who carry goods by sea are by the -nglish law subject to the liabilities of common carriers. (ee, as to the grounds and precise e#tent of this doctrine, the judgments in <iver Alkali ,ompany v. Gohnson /ID=!, <.3., E -#. 88I, and %ugent v. (mith /IDB! / ,.2.1. =:8.! In practice. goods are not often shipped without a written contract or acknowledgment of terms. 9or each separate consignment or parcel of goods shipped, a bill of lading is almost invariably given. 4hen a whole cargo is carried, the terms are set out in a document called a charter-party, signed by or on behalf of the shipowner on the one part, and the shipper, who is called the charterer, on the other. 4hen there is no written contractual agreement, the rights of the parties depend on the rules of law, or on the warranties or promises that, though not e#pressed, are implied as part of the relationship between the shipper and carrier. The obligations on the one side and the other are+

The shipper must not ship goods of a nature or in a condition he knows, or ought to know if he used reasonable care, to be dangerous to the ship, or to other goods $unless the shipowner is informed or has sufficient opportunity to observe the dangerous character. The shipper must be prepared, without notice from the 8:

shipowner, to take delivery of his goods with reasonable despatch on arrival of the ship at its destination. The shipper must pay the agreed freight, and is not be entitled to claim delivery until the freight is paid. In other words, the shipowner has a lien on the goods carried for the freight payable in respect of the carriage. &n the other hand, the shipowner is obligated to deliver the goods safely, and this obligation is, by common law, subject to this e#ception only that the shipowner is not liable for loss or damage caused by an act of Hod or the Lings) enemies. The statutes .erchant (hipping Act /IE=, 2art ;iii.!, however, specify that the shipowner is not liable for loss that happens without his actual fault or privity, by fire on board the ship, or by the robbery or embe00lement of$or making away with gold or silver or jewellery of a nature and value not declared in writing at the time of shipment. 9urther, the shipowner is not liable for damage to or loss of goods or merchandise beyond an aggregate amount that does not e#ceeding eight pounds per ton for each ton of the ship)s tonnage. The shipowner is bound by an implied undertaking$in other words, is responsible under the law as if he had entered into an e#press undertaking+ /! that the ship is seaworthyF :! that she shall proceed upon the voyage with reasonable despatch, and shall not deviate without necessity from the usual course of the voyage. This article outlines the important obligations of shipper and shipowner, where no terms of carriage have been agreed, e#cept as to the freight and destination of the goods, are such as have been described above.

"ills of lading
A bill of lading is a document the master or agent for the shipowner signs to acknowledge the shipment of a parcel of goods, and the terms under which it is carried. The document used today first appeared centuries ago as a bill account! presented to shippers for all charges incurred by the cargo until properly secured on board. In the age of sail, cargo and ships became lost more often than today. This bill proved that cargo e#penses were paid, but became mainly a proof that the cargo was really on board and thus become a negotiable property title. @nder this type of carriage, the bill of lading assumes two main tasks, as cargo receipt and property title. In liner shipping it assumes a triple identity+ property title, cargo receipt and carriage contract. In tramp shipping, object of this wiki entry, the carriage contract is the charter party.

<,press stipulations

It must not be supposed that even these primary obligations, which are introduced into every contract of affreightment not by e#press terms of the contract. It has now become common form to stipulate that the shipowner shall not be liable for any loss arising from the negligence of his servants, or that he shall not be liable for loss by the e#cepted perils even when brought about by the negligence of his servants. And with regard to seaworthiness, it is not uncommon for the shipowner to stipulate that he shall not be responsible for loss arising even from the 88

unseaworthiness of the ship on sailing, provided that due care has been taken by the owner and his agents and servants to make the ship seaworthy at the commencement of the voyage. %o rule of -nglish law prevents a shipowner from e#empting himself by the terms of the bill of lading from liability for damage and loss of every kind, whether arising from unseaworthiness or any other cause. In such a case the goods are carried at their owner)s risk, and if he desires protection he must obtain it by insurance. In this respect the law of -ngland permits greater freedom of contract than is allowed by the law of some other states. The owners, agents and masters of vessels loading in the @nited (tates of America are forbidden by an act of ,ongress, commonly called the *arter Act, passed in the year /IE8, to insert in their contracts of affreightment any clause e#empting the shipowner from liability for the negligence of his servantsF but it is at the same time enacted that, provided all reasonable skill and care has been e#ercised by the shipowner to make the vessel seaworthy and fit for the voyage at its commencement, the shipowner shall not be liable for any loss caused by the negligence of the master or crew in the navigation of the vessel, or by perils of the sea or certain other causes set forth in the act. It is now very usual to insert in the bills of lading of 5ritish vessels loading in the @nited (tates a reference to the *arter Act, incorporating its provisions so as to make them terms and conditions of the bill of lading.

The difficulty of construing the terms of bills of lading with regard to the e#cepted perils, often e#pressed in obscure and ine#act language, has given rise to much litigation, the results of which are recorded in the law reports. 4here such difficulties arise debate arises as to the true and natural meaning of the language used by the parties. The words of the contract must always be considered with reference to these rules, which are founded on the well-established customs of merchants recogni0ed and formulated by law. The bill of lading sometimes contains a clause as to the shipowner)s lien. 4ithout any e#press provision for it, the shipowner has by common law a lien for freight. If it is desired to give the shipowner a lien for demurrage or other charges, it must be e#pressly provided for. The lien is the right of the shipowner to retain the goods carried until paid the freight charges, demurrage, or other charge for which a lien has been given. The lien may be waived, and ends with delivery of the goods, or by any dealing with the consignee inconsistent with a right of the shipowner to retain possession of the goods until payment has been made. The shipowner may preserve his lien by landing the goods and retaining them in his own warehouse, or by storing them in a public warehouse, subject to the conditions re'uired by the .erchant (hipping Act /IE=!.

Customar/ rights
,ertain rights and obligations arise out of the relationship between shipowner and cargoowner in cases of e#traordinary peril or urgency during a voyage. Though not strictly contractual, these are well established by the customs of merchants, and recogni0ed by law.

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4hen a ship carries a cargo on a voyage, the master$to some e#tent$represents the owners of both ship and cargo. An emergency may re'uire that the master, without waiting for authority or instructions, incur e#pense or make sacrifices as agent$not for his employer, the shipowner, but also for the cargo-owner. (hip and cargo may be in peril, and it may be necessary for the safety of both to put into a port of refuge. There it may be necessary to repair the ship, and to land and warehouse, and afterwards re-ship the cargo. 9or these purposes the master is obliged to incur e#pense, of which some, such as the cost of ship repairs, is for the benefit of the shipowner. &ther e#penses, such as warehousing fees, are for the benefit of the cargo-owner. Set other e#penses, such as port charges incurred to enter the port of refuge, are for the benefit and safety of both ship and cargo. In a storm at sea, it may be necessary for the safety of ship and cargo to cut away a mast or to jettison throw overboard! part of the cargo. In such a case the master, acting for the shipowner or cargo-owner, as the case may be, sacrifices part of the ship or part of the cargo to save the rest of the ship and cargo from a common danger. ;oluntary sacrifices and e#traordinary e#penses incurred for the common safety are called general average sacrifices and e#penses. These are made good to the party who has made the sacrifice or incurred the e#pense by a general average contribution, which is recoverable from the owners of the property saved in proportion to its value. In other words, each contributes according to the benefit received. The law that regulates the rights of the parties in regard to such contribution is called the law of general average. *owever, the owner of the cargo is entitled under the contract of affreightment to the ordinary service of the ship and crew for the safe carriage of the cargo to its destination, and the shipowner is bound to pay all ordinary e#penses incurred for the voyage. *e must also bear all losses that arise from accidental damage to the ship. *owever, when the shipowner incurs e#traordinary e#pense for the safety of the cargo, he can recover the e#pense from the cargo)s owner as a special charge on cargo. Also, when the shipowner incurs an e#traordinary e#pense or makes a voluntary sacrifice to save the ship and cargo from a common peril, he may re'uire the cargo owner to contribute in general average.

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