Lecture 4 Flashcards
Why does International Finance matter?
Essential for the global economy as it facilitates the exchange of capital for payments, purchases, investments, and economic development.
How does International Finance impact developing economies?
Developing economies often rely on foreign capital to jumpstart infrastructure and development projects. However, mismanagement of international finance can also pose risks and lead to economic disasters.
What is the Balance of Payments (BOP)?
a record of economic transactions between a country and the rest of the world.
What are the components of the Balance of Payments?
include the Current Account, Capital/Financial Account, Official Reserve Transactions, Errors and Omissions, and the Overall Balance.
What does the Current Account measure?
measures the transactions that create earnings and generate expenditures between a country and the rest of the world, including goods and services, net income on assets, and transfers.
What does the Capital/Financial Account record?
records the exchanges of assets, such as foreign direct investment (FDI), portfolio investment, and commercial bank lending.
Why is FDI considered a safer international capital flow?
involves long-term ownership in productive enterprises, making it less susceptible to sudden capital withdrawals.
What are the major types of capital flows?
- Foreign Direct Investment (FDI)
- equity portfolio investmen
- portfolio bond finance,
- commercial bank lending.
What is the difference between equity and debt instruments in international finance?
Equity instruments represent ownership in a company,
debt instruments, such as bonds, involve lending money to be paid back with interest.
What are sovereign debts, and why are they important?
debts incurred by governments through borrowing.
crucial because they determine a country’s creditworthiness, interest rates, and ability to finance its spending.
What are net capital flows?
Net capital flows represent the difference between capital inflows and outflows, indicating the overall change in a country’s foreign assets.
What are push factors in capital flows
*Push factors are factors which ostensibly cause capital to leave origin countries
What are pull factors in capital flows
- Pull factors are ones which cause capital to invest in a certain country
What are Gross capital flows ?
measure the total amount of capital entering or leaving a country, regardless of the net result.
