International Finance
Four (4) types of foreign investment.
1) portfolio investment
2) foreign direct investments (FDI)
3) Concessional Finance
4) Sovereign Lending
What does it mean when a currency is strong?
It means that Currency A relative to Currency B has either A) appreciated in value, or B) is currently greater in value.
THIS theory seeks to explain how global inequality persists due to historical injustices.
What is dependency theory?
The World Trade Organization (WTO) was formerly called what?
The GATT (General Agreement on Tariffs and Trade)
States are better at making certain goods than others. They should specialize in the goods they make efficiently, then trade for the goods they don’t make efficiently. What is this called?
Comparative advantage
According to Hecksher-Ohlin Theory, capital should flow in THIS(1) direction between capital abundant states and capital scarce states. However, in reality, it actually flows THIS(2) way.
Theory: What is capital-abundant states --> capital-scarce states?
Reality: What is capital-abundant states --> capital-abundant states?
The two types of exchange rate
Fixed or floating/flexible exchange rates
Example: Fixed = USD backed by Gold Standard. Floating = Present Day System for USD.
This institution is sometimes called "the lender of last resort"
Daily double!! : Explain why
The IMF
Quotas, subsidies, and tax breaks are all examples of what?
Non-tariff barriers
This occurs when a country places a tax on an imported good in order to boost domestic manufacturing.
Protectionism
This is another term for conditions of a loan imposed by an institution such as the world bank or IMF. The conditions are intended to either improve a recipient state's economy, or maintain colonial power structures by forcing poor countries to adopt neoliberal economic standards, depending on who you ask.
Austerity or austerity measures
A country suffers from this when they are exploited by rich countries for raw materials.
Bonus: Provide an example.
What is the resource curse?
In most developed countries, this institution is responsible for determining interest rates.
The Central Bank
This model of trade argues how the type and quantity of factors of production should dictate the flow of goods, capital, and labor.
What is the Heckscher-Ohlin model?
This is why corporations may choose to go international when it comes to their manufacturing.
A business might manufacture goods in a different country because, if there are a lot of available workers (an abundance of low skill labor) the business could pay lower wages than what it would pay to American workers. Some would call this exploitation. Depends on who you ask.
This is one of the reasons why a developing country may prefer a fixed exchange rate.
To signal stability and encourage other countries/ businesses to invest
This group of countries is well known for their success in purr-suing export-oriented industrialization
The Asian Tigers
These institutions have rules against currency manipulation (2 institutions).
The IMF and World Trade Organization
Countries can be accused of this when they have a floating exchange rate system where the value of their currency does not change.
Bonus: Provide an example country.
What is currency manipulation?
Bonus: China, India, Taiwan, South Korea
This is the international institution responsible for regulating Foreign Direct Investment.
What is: There is none! :0
This type of actor benefits when their national currency is relatively weaker than foreign competitors.
Exporters
Which type of foreign investment provides most capital flow to developing countries?
Foreign direct investment (FDI)
Is it possible for a country to increase or decrease their interest rates if their currency is pegged to another currency?
No. In fixing the exchange rate, a country forfeits the ability to change its interest rates.
During a debt crisis, why would some countries stick to a fixed (pegged) exchange rate, rather than devalue their currency?
If the country is in a lot of debt, devaluing their currency could make matters worse- it would make it harder to repay their debt.