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27 Cards in this Set
- Front
- Back
Balance of Trade
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transactions between US and all other countries
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Current Account
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- payments for merchandise and services
- factor income payments (interest and dividends) - transfer payments (aid, gifts, grants, etc) |
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Financial Account
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-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) |
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Primary countries US imports and exports from
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Canada, Mexico, China, Wester Europe
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Is balance of trade surplus or deficit good or bad?
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there are pro's and cons to both.
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4 Causes of Trade Friction
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1. using the exchange rate as policy
2. Outsourcing 3. Using trade and foreign policy for security 4. Using trade policies for political reasons. |
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Capital Account
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- financial assets transferred across county borders
- non-produced non-financial assets (patents and trademarks) |
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Using the exchange rate as a policy
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eg. European exporters cannot compete with US due to strength of Euro. US exporters cannot compete with China due to weak yuan.
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4 Factors Affecting International Trade Flows
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1. INflation
2. National Income 3. Government Policies 4. Exchange Rates |
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Inflation as it affects national trade flows
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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
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Balance of Trade
|
transactions between US and all other countries
|
|
Current Account
|
- payments for merchandise and services
- factor income payments (interest and dividends) - transfer payments (aid, gifts, grants, etc) |
|
Financial Account
|
-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) |
|
Primary countries US imports and exports from
|
Canada, Mexico, China, Wester Europe
|
|
Is balance of trade surplus or deficit good or bad?
|
there are pro's and cons to both.
|
|
4 Causes of Trade Friction
|
1. using the exchange rate as policy
2. Outsourcing 3. Using trade and foreign policy for security 4. Using trade policies for political reasons. |
|
Capital Account
|
- financial assets transferred across county borders
- non-produced non-financial assets (patents and trademarks) |
|
Using the exchange rate as a policy
|
eg. European exporters cannot compete with US due to strength of Euro. US exporters cannot compete with China due to weak yuan.
|
|
4 Factors Affecting International Trade Flows
|
1. INflation
2. National Income 3. Government Policies 4. Exchange Rates |
|
Inflation as it affects national trade flows
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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
|
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National Income as it affects International Trade Flows
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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.
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Government policies as they affect International Trade Flows
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-subsidies
- restrictions on imports - lack of restrictions on piracy If government raises taxes on imported goods, imports decrease and trade balance goes up. |
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Exchange Rates as they impact International Trade Flows
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If currency value increases in comparison to other nations, current account will decrease.
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Three factors affecting international Portfolio Investment
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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. |
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Why isn't a weak home currency not a perfect solution to a trade deficit? 4 REASONS
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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 |
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5 factors affecting DFI
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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 |
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Agencies that Facilitate International Flows
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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 |