! Supply and Demand! ! Balance of Payments- current account, capital account and ﬁnancial account.! ! CA! ! exports/outﬂows! ! imports/inﬂows ! net! !
trade! ! goods ! +500! ! ! ! - 800! ! ! -300! !
Introduction to international ﬁnance ch. 2!
! services! +700! ! ! ! proﬁts!! +800! ! ! ! Balance! ! ! ! ! ! Financial Capital Account! ! ! ! Ouﬂow! ! !
FDI! ! Stocks! Bonds!!
! ! !
- 500! ! -1000! ! ! ! ! !
+200! -200! -300!
! ! ! ! ! !
inﬂow! ! 50! 400! 400! 50! ! ! ! ! ! !
! ! ! ! !
net! -350! 300! 300! 50! +300!
-400! ! -100! ! -100! ! !
! ! !
Capital! ! !
! What is the impact of a current account deﬁcit on a country's currency?! ! Causes it to depreciate! ! Why doesn't the $ always depreciate as a result of its deﬁcit?! !
0! ! !
Because people buy treasuries thus reducing the amount of dollars in circulation limiting depreciation!
! What are some subtle trade restrictions? / Restrictions imposed by governments! !
taxes / tariffs on imports! quotas! exchange rates! subsidies! Security reason - allowing other countries to build military planes, etc.!
Factors affecting international trade ﬂows!
! ! !
Inﬂation ! Ius > Iuk buy more uk goods / CA Decreases!
National Income! US > UK --> import more / CA decreases! Gov't policies! !
! Exchange Rates! ! ! How can a ﬂoating exchange rate correct trade imbalance?! ! !
What is the impact of $ depreciation on the US balance of trade in the short run? in the long run?! If the dollar depreciates in the short run there is not gonna be much of a change because a lot of transactions are done before hand on contracts. In the long run at ﬁrst there is decrease in CA with more deﬁcit but over it balances out closer to zero. J-curve effect.!
! Factors that affect Foreign portfolio investment! ! !
Taxes on interest or dividends! ! higher interest rates attracts foreign investment! ! Interest rates! Exchange rates! ! !
! CH 3 History of...