International Trade Flow Flashcards

What makes up the Current Account?

Trades of Goods and Services (net exports)

Investment (factor) income ex. money earned by Japanese car producers in the US

Net Transfers - money flows from private or public sectors
ex. donations, official assistance, grants, etc.

(no financial liabilities)

What makes up the financial account?

purchase of financial assets abroad (things that CONTINUE to earn money)

ex. Korean company invests in a factory in Ohio

ex. American buys Japanese government bonds

If the US dollar depreciates relative to other countries does the BOP move toward a deficit or surplus?

US dollar depreciates → lower disposable income → less imports → greater net exports → BOP moves towards a surplus

Trade Surplus

exporting more than imported

Trade Deficit

Exported less than imported

Fixed Exchange Rate

government activity manages country’s currency

Floating Exchange Rate

market determines the value of country’s currency

Why do some governments attempt to depreciate their currency?

In order to promote exports (if their money is less value relative to other currencies → cheaper for other countries to purchase)

Shifters of the Foreign Exchange Market

1. Change in tastes

2. Income

3. Interest rates

4. Price Level