The Basics
What is a comparative advantage?
It is the price of one currency in terms of another. It's usually expressed as the domestic price of the foreign currency.
What is the nominal exchange rate?
US residents purchase of foreign assets – purchase of US assets by foreigners
What is Net Foreign Investment?
Real interest rates being paid on foreign assets, Real interest rates being paid on domestic assets, Perceived economic and political risks of holding assets abroad, Government policies that affect foreign ownership of domestic assets
What factors influence the flow of capital?
Lower inflation, Lower costs for some exporters, cheaper travel abroad.
What are some advantages of a stronger currency?
It is to bring (goods or services) into a country from abroad for sale.
What is an Import?
It is the exchange rate between countries that takes into account the price level between these countries.
What is the real exchange rate?
This market describes how that borrowing happens. Its supply is based on savings. The demand is based on borrowing.
What is the market for loanable funds?
Consumer tastes for domestic and foreign goods, Prices of goods home and abroad, Exchange rates, Cost of Transportation, Government policies toward trade
What factors influence the flow of goods?
Increased exports, economic growth, more job creation, increased tourism.
What are some advantages of a weaker currency?
It is sending goods or services to another country for sale.
What is an export?
This impact on the value of the domestic currency can be caused by capital flight (the outflow of capital from a country) due to negative monetary policies, hyperinflation, political risks, etc.
What is currency depreciation?
The supply is determined by level of domestic demand for / expenditure on imported goods and services from abroad.
What is the supply of currency available for foreign currency exchange?
An example of this would be Mr Woodruff opening up a Gas Station in Kabul, Afghanistan.
What is Foreign Direct Investment?
In a nation such as the US, Government deficits will increase the real interest rates and cause the real exchange rate to ____.
What is to rise/increase?
A situation where exports are greater than imports.
What is a trade surplus?
This occurs when Canadian citizens significantly increase their demand for Mexican financial assets.
What is the appreciation of the peso?
Higher interest rates in a Country Alpha will typically have this effect on the value of Alpha dollars?
What is an increase? (in the value of Alpha dollars)?
This would include Mr Johnson buying shares of Toyota, Alibaba, and Mercedes Benz in his retirement ´portfolio´?
What is Foreign Portfolio Investment?
It describes a trade balance when net foreign investment is negative.
What is a trade deficit? (or imports exceed exports)
It is the practice of buying at a low price and selling at a higher price
What is arbitrage? (Starbuck in Seattle v NYC)
It is the part of a personś income that is not spent on goods or services or paid out as taxes.
What is savings?
When the US real interest rates rise, domestic assets become ___ attractive to foreigners and foreign assets become ___ attractive to domestic residents.
What is more and less?
It is the impact on NFI if residents of Gamma experience real lower rates of return on Gamman denominated investments.
What is increase or more positive?
Term used to describe a nation´s trading status when NFI=NX.
What is ´balanced trade´?