Lecture Notes 9

Lecture Notes 9 - 27/04/11 International Sector...

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Unformatted text preview: 27/04/11 International Sector International Finance Balance of Payments: o Record of international economic transactions o Current account goods and services account o If the U.S. is continually spending more on foreign goods, the exchange rate should adjust so that there cannot be current account debt o If we are continually importing foreign goods we are essentially borrowing giving assets to a foreign country notion, if as a country we are continually borrowing (importing more than we are exporting) it is financed by borrowing especially from China Exchange Rates: simply the price of foreign currency - what determines the exchange rate? It is a matter of supply and demand o There is a demand for foreign goods and services o Speculation of their value there may be an opportunity for profit if the value of the pound increases o Purchasing financial, real (land) assets securities, stocks and bonds, land Demand for a foreign currency is lower at higher prices, P = e*P price for you = exchange rate * foreign price...
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