International-Flow-of-Funds - Chapter 2 International Flow...

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Chapter 2 International Flow of Funds Lecture Outline Balance of Payments Current Account Capital Account International Trade Flows Distribution of U.S. Exports and Imports U.S. Balance of Trade Trend Trade Agreements Trade Disagreements Factors Affecting International Trade Flows Impact of Inflation Impact of National Income Impact of Government Restrictions Impact of Exchange Rates Correcting a Balance of Trade Deficit Why a Weak Home Currency is not a Perfect Solution International Capital Flows Distribution of DFI by U.S. Firms Distribution of DFI in the U.S. Factors Affecting Direct Foreign Investment Factors Affecting International Portfolio Investment Agencies that Facilitate International Flows How International Trade Affects an MNC’s Value 15
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16 International Financial Management Chapter Theme This chapter provides an overview of the international environment surrounding MNCs. The chapter is macro-oriented in that it discusses international payments on a country-by-country basis. This macro discussion is useful information for an MNC since the MNC can be affected by changes in a country’s current account and capital account positions. Topics to Stimulate Class Discussion 1. Is a current account deficit something to worry about? 2. If a government wants to correct a current account deficit, why can’t it simply enforce restrictions on imports? 3. Why don’t exchange rates always adjust to correct current account deficits? POINT/COUNTER-POINT: Should Trade Restrictions be Used to Influence Human Rights Issues? POINT: Yes. Some countries do not protect human rights in the same manner as the U.S. At times, the U.S. should threaten to restrict U.S. imports from or investment in a country if it does not correct human rights violations. The U.S. should use its large international trade and investment as leverage to ensure that human rights violations do not occur. Other countries with a history of human rights violations are more likely to honor human rights if their economic conditions are threatened. COUNTER-POINT: No. International trade and human rights are two separate issues. International trade should not be used as the weapon to enforce human rights. Firms engaged in international trade should not be penalized by the human rights violations of a government. If the U.S. imposes trade restrictions to enforce human rights, the country will retaliate. Thus, the U.S. firms that export to that foreign country will be adversely affected. By imposing trade sanctions, the U.S. government is indirectly penalizing the MNCs that are attempting to conduct business in specific foreign countries. Trade sanctions cannot solve every difference in the beliefs or morals between the more developed countries and the developing countries. By restricting trade, the U.S. will slow down the economic progress of developing countries. WHO IS CORRECT? Use InfoTrac or some other search engine to learn more about this issue. Which
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International-Flow-of-Funds - Chapter 2 International Flow...

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