Chapter 2

Question 1

balance of payments

Answer 1

summary of transactions between domestic and foreign residents for a specific country over a specified period of time

Question 2

current account

Answer 2

represents a summary of the flow of funds between one specified country and all other countries due to purchases of goods and services or to the cash flows generated by income producing financial assets

1. merchandise (goods)
2. factor income
3. transfers

Question 3

financial account

Answer 3

the special types of investment, including DFI, and portfolio investment

1. direct foreign investment
2. portfolio investment
3. capital investment

Question 4

balance of trade

Answer 4

difference between total exports and imports

Question 5

factor income

Answer 5

income received by investors on foreign investments in financial assets

Question 6

events that increased

Answer 6

fall of Berlin Wall
single European Act -
NAFTA - trade barriers between US and Mexico were eliminated
GATT - included over 117 countries, eliminated trade barriers
Euro - formalized currency across Europe

Question 7

outsourcing

Answer 7

the process of subcontracting to a third party

Question 8

factoring affecting international trade flow

Answer 8

cost of labor 
inflation
national income 
credit conditions
government policies 
exchange rates

Question 9

tariff

Answer 9

consumers must pay more to purchase foreign goods because of this

Question 10

quota

Answer 10

max limit of an item that can be imported

Question 11

dumping

Answer 11

exporting products that were produced with the help of government subsidies is commonly referred to as this

Question 12

J curve effect

Answer 12

the phenomenon or lag between currency value at the time of an agreement vs when it is completed

Question 13

intercompany trade

Answer 13

firms purchase items from other subs in their company

Question 14

International Monetary Fund(IMF)

Answer 14

1. promote cooperation among countries on international monetary issues
2. promote stability in exchange rates
3. provide temporary funds to member countries attempting to correct imbalances of international payments
4. promote free mobility of capital funds across countries
5. promote free trade

Question 15

special drawing rights SDR’s

Answer 15

financing by the IMF is measured in this

Question 16

compensatory financing facility CFF

Answer 16

aims to reduce the impact of export instability on the economies of member countries

Question 17

International Bank for Reconstruction and Development IBRD

Answer 17

also referred to as the World Bank, makes loans to countries in order to reduce poverty and enhance economic development

Question 18

Structural Adjustment Loan SAL

Answer 18

intended to enhance a countries long term economic growth

Question 19

cofinancing agreeements

Answer 19

working with:
official aid agencies
export credit agencies
commercial banks

Question 20

Multilateral Investment Guarantee Agency MIGA

Answer 20

offers various forms of political risk insurance

Question 21

World Trade Organization WTO

Answer 21

provides a forum for multilateral trade negotiations and to settle trade disputes related to the GATT

Question 22

International Financial Corporation IFC

Answer 22

established to promote private enterprises within countries, works to develop economies through the private sector

Question 23

International Development Association IDA

Answer 23

created in 1960 with country development objectives similar to those of the World Bank

Question 24

Bank for International Settlements (BIS)

Answer 24

attempts to facilitate cooperation among countries with regard to international transactions