mid term - Chapter 2: Balance payment is summary of...

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Chapter 2: Balance payment is summary of transaction bet domestic and foreign residents for a specific country over a specified period of time. The current account represents a summary of the flow of funds between one specific country and all other countries due to purchases of goods or services, or the provision of income on financial assets. The capital account represents a summary of the flow of funds resulting from the sale of assets between one specified country and all other countries over a specified period of time. The difference between total exports and imports is referred to as the balance of trade. Merchandise exports and imports represent tangible products such as computers and clothing that are transported between countries. Factor income represents the income received by investors on foreign investment in financial asset. Transfer payment represent aid, grants, and gifts from one country to another. Capital account includes the value of financial assets transferred across country borders by people who move to a different country. It includes the value of nonproducded nonfinancial assets that ate transferred across country borders such as patents and trademarks. DIRECT FOREIGN INVESTMENT represent the investment in fixed assets in foreign countries that can be used to conduct business operations. PORTFOLIO investment represents transaction involving long term financial asset between countries that do not affect the transfer of control. OTHER Capital investment represent transaction involving short term financial assets. ERRORS and Omissions and Reserves : if a country has a negative current account balance, it should have a positive capital and financial account balance. International trade issues: removal of the Berlin wall, in 1989 the wall separate east and west germary was torn down this was symbolic of new relationship. which encourage free enterprise in all eastern European country. Led to reducation in trade barriers in eastern Europe. MCS begain to export. SINGLE EURO ACT : 1980 regulation were made uniform to remove taxes on goods traded. Followed by series of negotiations among the countries. NAFTA elimainated trade barriers betw US and mexico. Trader friction : international trade policies partially determine which firms get most of the market sharewithin an industry. Affect each other unemployment level, income level and economic level. Some types of trade resticition on particular products are in order to protect their local firms. Using exchange rate: exporter claim they are mistreated and lobby their government to adjust the currency so tht their exports will not be so expensive for foreign purchase. as policy And Outsourcing: affects the balance of trade because service is purchase in other country. Shifts of jobs. Factors affecting international trade flows : impact of inflation : inflation rate increase relative to the countries with which it trade its current account will be expected to decrease, other b eing equal. Consumers and corporations in that country
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This note was uploaded on 06/10/2010 for the course FINANCE 442 taught by Professor Knight during the Spring '10 term at National University of Singapore.

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mid term - Chapter 2: Balance payment is summary of...

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