Int Fin Ch 2

Front 1

Balance of Trade

Back 1

transactions between US and all other countries

Front 2

Current Account

Back 2

- payments for merchandise and services
- factor income payments (interest and dividends)
- transfer payments (aid, gifts, grants, etc)

Front 3

Financial Account

Back 3

-DFI (investment in foreign fixed assets used to conduct business)
- Portfolio Investment: long term financial assets (stocks and bonds)
- other (short term assets such as money market securities)

Front 4

Primary countries US imports and exports from

Back 4

Canada, Mexico, China, Wester Europe

Front 5

Is balance of trade surplus or deficit good or bad?

Back 5

there are pro's and cons to both.

Front 6

4 Causes of Trade Friction

Back 6

1. using the exchange rate as policy
2. Outsourcing
3. Using trade and foreign policy for security
4. Using trade policies for political reasons.

Front 7

Capital Account

Back 7

- financial assets transferred across county borders
- non-produced non-financial assets (patents and trademarks)

Front 8

Using the exchange rate as a policy

Back 8

eg. European exporters cannot compete with US due to strength of Euro. US exporters cannot compete with China due to weak yuan.

Front 9

4 Factors Affecting International Trade Flows

Back 9

1. INflation
2. National Income
3. Government Policies
4. Exchange Rates

Front 10

Inflation as it affects national trade flows

Back 10

As inflation increases, the price of goods increase. This means that as prices go up exports go down and imports go up. So the current accounts will decrease as inflation goes up relative to other nations

Front 11

Balance of Trade

Back 11

transactions between US and all other countries

Front 12

Current Account

Back 12

- payments for merchandise and services
- factor income payments (interest and dividends)
- transfer payments (aid, gifts, grants, etc)

Front 13

Financial Account

Back 13

-DFI (investment in foreign fixed assets used to conduct business)
- Portfolio Investment: long term financial assets (stocks and bonds)
- other (short term assets such as money market securities)

Front 14

Primary countries US imports and exports from

Back 14

Canada, Mexico, China, Wester Europe

Front 15

Is balance of trade surplus or deficit good or bad?

Back 15

there are pro's and cons to both.

Front 16

4 Causes of Trade Friction

Back 16

1. using the exchange rate as policy
2. Outsourcing
3. Using trade and foreign policy for security
4. Using trade policies for political reasons.

Front 17

Capital Account

Back 17

- financial assets transferred across county borders
- non-produced non-financial assets (patents and trademarks)

Front 18

Using the exchange rate as a policy

Back 18

eg. European exporters cannot compete with US due to strength of Euro. US exporters cannot compete with China due to weak yuan.

Front 19

4 Factors Affecting International Trade Flows

Back 19

1. INflation
2. National Income
3. Government Policies
4. Exchange Rates

Front 20

Inflation as it affects national trade flows

Back 20

As inflation increases, the price of goods increase. This means that as prices go up exports go down and imports go up. So the current accounts will decrease as inflation goes up relative to other nations

Front 21

National Income as it affects International Trade Flows

Back 21

When you make more you spend more. When national income increases imports increase and trade deficit goes up. As national income increases relative to other countries, current account decreases.

Front 22

Government policies as they affect International Trade Flows

Back 22

-subsidies
- restrictions on imports
- lack of restrictions on piracy
If government raises taxes on imported goods, imports decrease and trade balance goes up.

Front 23

Exchange Rates as they impact International Trade Flows

Back 23

If currency value increases in comparison to other nations, current account will decrease.

Front 24

Three factors affecting international Portfolio Investment

Back 24

1. Tax Rates on Interest and Dividends: firms will invest in country with lower taxes
2. Interest Rates: firms will invest in country with high interest level
3. Exchange rate: if country expects exchange rate to increase, they will want to invest.

Front 25

Why isn't a weak home currency not a perfect solution to a trade deficit? 4 REASONS

Back 25

1. Counterpricing by Competitors: competitors will lower prices to compete with effect of weak currency
2. Impact of other weak currencies: other currencies may drop as well
3. Prearranged International Transactions: J-Curve==> price of foreign supplies needed for production increase
4. Intercompany Trade: buying products from own subsidiaries

Front 26

5 factors affecting DFI

Back 26

1. Changes in Restrictions: as restictions are loosened DFI goes up
2. Privatization: investors don't like investing in nationalized companies.
3. Potential for Growth
4. Tax Rates
5. Exchange Rates: prefer increasing exchange rates
3. Potential Economic Growth
4. Tax Rates
5. Exchange Rates

Front 27

Agencies that Facilitate International Flows

Back 27

1. IMF
2. World Bank
3. WTO
4. International Financial Corporation
5. Bank for International Settlements
6. Organization for Economic Cooperation
7. Regional Development Agencies