Chapter 2 Flashcards
What is the balance of payments?
A summary of transactions between domestic and foreign residents for a specific country over a period of time
What are the three components of the balance of payments?
Current account, capital account, and financial account
What is included in the current account?
Payments for goods and services, primary income (e.g., dividends, MNC profits), and secondary income (e.g., foreign aid)
How does the financial account differ from the capital account?
The financial account records investments like direct foreign investment and portfolio investment, while the capital account records asset transfers, such as the sale of patents and trademarks
What were key historical events that increased international trade?
The removal of the Berlin Wall, NAFTA, the Single European Act, and the inception of the Euro
What is outsourcing, and how does it impact international trade?
Outsourcing involves subcontracting services to a third party in another country, increasing trade but also leading to job losses in the home country
What factors affect international trade flows?
Cost of labor, inflation, national income, government policies, and exchange rates.
How do exchange rates affect a country’s current account?
If a country’s currency appreciates, its exports become more expensive, reducing demand and increasing the current account deficit
What attracts direct foreign investment (DFI) in a country?
Economic growth potential, low tax rates, and favorable exchange rates
Which international agencies facilitate the flow of funds globally?
The IMF, World Bank, WTO, IFC, OECD, and regional development banks
What is the primary objective of the World Trade Organization (WTO)?
To provide a forum for trade negotiations and settle trade disputes.
How does the IMF promote international monetary cooperation?
By promoting exchange rate stability, free trade, and providing temporary funds to correct imbalances in international payments
J-Curve
