International finance

Exports

Domestically produced goods and services sold abroad.

Imports

Goods and services produced abroad sold domestically.

Net exports

The difference between exports and imports (Exports - Imports).

Trade surplus

Occurs when net exports are greater than zero (Net exports > 0).

Trade deficit

Occurs when net exports are less than zero (Net exports < 0).

Balanced trade

Occurs when net exports equal zero (Net exports = 0).

Financial inflows

Investments by foreigners in Canada.

Financial outflows

Investments by Canadians in foreign countries.

Foreign direct investment

Investment where a foreign company opens a subsidiary in another country (e.g., an Italian company in Canada).

Portfolio investment

Investment involving purchases of financial assets (e.g., Japanese investor buying Canadian bonds).

Nominal exchange rate

The rate at which one currency can be exchanged for another.

Depreciation

When the price of a currency falls.

Appreciation

When the price of a currency rises.

Foreign exchange market

The market in which currencies are bought and sold.

Equilibrium exchange rate

Determined by the demand and supply of a currency.

Real exchange rate

The rate at which a person can trade goods and services of one country for another.

Balance of payments

Summarizes a country's transactions with the rest of the world.

Current account

Measures how much income crosses national borders each year.

Financial account

Tracks the financial flows across borders.

Current account balance

Measures the difference between income received from abroad and income paid to people abroad.

Financial account balance

Measures the difference between financial inflows and financial outflows.