Chapter_2 - Chapter 2 International Flow of Funds 1 Balance...

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Unformatted text preview: Chapter 2 International Flow of Funds 1 Balance of Payment (BOP) BOP is a summary of transactions between domestic and foreign residents for a specific country over specified period of time 2 A. BOP Accounting 3 B. Balance of Payments 1. Current Account: a. Payments for merchandise and services b. Factor income payments c. Transfer payments 4 B. Balance of Payments 2. Capital and Financial Accounts a. Direct foreign investment (DFI) b. Portfolio investment c. Other Capital Investment 3. Errors and Omissions 4. Reserves and Related Items 5 C. International Trade Flows 1. Distribution of U.S. Exports and Imports 2. U.S. Balance of Trade (BOT) Trend 3. Should the U.S. be Concerned about a Huge BOT Deficit? 6 2006 Distribution of U.S. Exports and Imports Insert Exhibit 2.4 from page 28 7 C. International Trade Issues 1. Events that Increased International Trade a. Removal of the Berlin Wall b. Single European Act c. NAFTA d. Inception of the Euro e. European Union Expansion 8 C. International Trade Issues 2. Trade Friction: Causes a. Using the exchange rate as policy b. Outsourcing c. Using trade and foreign ownership policies for security d. Using trade policies for political reasons 9 D. Factors Affecting International D. Trade Flows Trade 1. Four Factors a. Inflation b. National Income c. Government Policy d. Exchange Rates 10 10 E. Correcting a Balance of Trade E. Deficit Deficit 1. Why a Weak Home Currency is Not a Perfect Solution a. Counterpricing by Competitors b. Impact of Other Weak Currencies c. Prearranged International Transactions: J­curve Effect d. Intercompany Trade 11 11 J­Curve Effect Insert exhibit 2.6 page 38 12 12 F. International Capital Flows 1. Distribution of DFI by U.S. Firms 2. Distribution of DFI in the United States 3. Factors Affecting DFI a. Changes in Restrictions b. Privatization c. Potential Economic Growth d. Tax Rates e. Exchange Rates 13 13 F. International Capital Flows 4. Impact of International Capital Flows Impact of the international Flow of Funds on U.S. Interest Rates and Business Investment in the United States 14 14 G. Agencies that Facilitate G. International Flows International 1. International Monetary Funds 2. World Bank 3. World Trade Organization 15 15 G. Agencies that Facilitate G. International Flows International 4. International Financial Corporation 5. International Development Association 6. Bank for International Settlements 7. Organization for Economic Cooperation and Development 8. Regional Development Agencies 16 16 ...
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