IFM_IM_ch02 - Chapter 2 International Flow of Funds Lecture...

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Chapter 2 International Flow of Funds Lecture Outline Balance of Payments Current Account Capital and Financial Accounts International Trade Flows Distribution of U.S. Exports and Imports U.S. Balance-of-Trade Trend International Trade Issues Events That Increased International Trade Trade Friction Factors Affecting International Trade Flows Impact of Inflation Impact of National Income Impact of Government Policies Impact of Exchange Rates Interaction of Factors 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 United States Factors Affecting DFI Factors Affecting International Portfolio Investment Impact of International Capital Flows Agencies That Facilitate International Flows International Monetary Fund World Bank World Trade Organization International Financial Corporation International Development Association Bank for International Settlements Organization for Economic Cooperation and Development Regional Development Agencies How International Trade Affects an MNC’s Value 16
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17 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
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IFM_IM_ch02 - Chapter 2 International Flow of Funds Lecture...

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