Lecture 16: Importance of Monetary Aspects of Trade Flashcards Preview

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Flashcards in Lecture 16: Importance of Monetary Aspects of Trade Deck (23)
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What are the importance of monetary aspects of trade? (4)

1. International financial market transaction dwarf trade in goods and services
2. Global finance an important source of global integration
3. Exchange rates strongly influence merchandise trade
4. Role of central bank and other government policies in affecting interest rates, exchange rates, and economic growth


Capital assets

The engine of economic growth


What are the 5 types of capital?

1. Natural capital
2. Physical capital
3. Financial capital
4. Human capital
5. Social capital


Financial capital markets serve to: (4)

1. Pool domestic savings
2. Attract foreign capital
3. Intermediate between lenders and borrowers
4. Provide financing to entrepreneurs

All in order to promote economic growth


Distinction between international portfolio investment vs foreign direct investment

International Portfolio investment does not involve direct management control


International Portfolio Investment

Investment ot diversify investor's portfolio


Foreign direct investment (FDI)

Flow of funding (through lending and/or purchase) to establish influence and/or (partial) control of a foreign form, or to expand or reinvest in said firm


Capital and financial account records: (4)

Financial transactions which affect balance of assets between countries:
1. Corporate stocks and bonds 2. Government securities
3. Real estate
4. Commercial bank deposits


Foreign direct investments are part of a country's _______

Capital and Financial Account


What other types of financial transactions does the capital and financial account include? (7)

1. Debt forgiveness
2. Transfer of migrants' financial assets
3. Sales and purchase of rights to patents
4. Copyrights
5. Trademark
6. Franchise
7. Leases


Current account

Measures net balance of exports and imports of goods and services


What does the current account include? (4)

1. Merchandise balance
2. Services balance
3. Investment income
4. Unilateral transfers


Motivations for international capital flows: (7)

1. Maximize expected rate of return on capital
2. Diversify risk within international portfolio
3. Market expansion and diversification
4. Minimize costs of production
5. Horizontal or vertical integration
6. Secure access to raw materials
7. Secure access to promising markets


Which markets has higher rates of return?

Emerging markets have higher rate of returns with higher risk


What are the top 10 highest risk countries?

1. Iran
2. Afghanistan
3. Cambodia
4. Tajikistan
5. Guinea-Bissau
6. Iraq
7. Mali
8. Swaziland
9. Mozambique
10. Myanmar


What are the top 10 least risky countries?

1. Singapore
2. Switzerland
3. Norway
4. Denmark
5. Luxembourg
6. Netherlands
7. Sweden
8. New Zealand
9. Canada
10. Germany


FDI are mainly focused in _____ economies

Developing economies


Top 10 Host Countries for FDI Inflows

1. US
2. UK
3. China
4. HK
5. Singapore
6. Brazil
7. France
8. Netherlands
9. Australia
10. India


____ is the major regional destination for FDI



Capital controls

Are government-imposed barriers on capital outflows (domestic savers or investors investing abroad) or on capital inflows (foreign savers, or investors investing domestically)


Why may governments want to impose capital controls? (4)

1. Regulate foreign exchange and influence its balance of payments position and domestic currency value
2. Encourage and discourage specific transactions (exchange rate system)
3. Enable domestic monetary or fiscal policy to be more flexible and powerful by limiting scope of exchange rate policy
4. Limit financial market instability by regulating inflows/outflows


Benefits of FDI for host country: (6)

1. Increased production, exports and employment
2. Generate tax revenues
3. Achieve scale economies and production efficiency
4. Human capital development
5. Technology transfer
6. Increased competition with domestic industry may lower market power and reduce prices


Problems with FDI for host country: (4)

1. Instability in the exchange rate and balance of payments
2. Adverse impact on terms of trade
3. Crowding out of domestic investment and investible funds away from alternative investment
4. Loss of control over domestic policy