Podcast
Questions and Answers
Which term refers to the situation where a country's exports are less than its imports?
Which term refers to the situation where a country's exports are less than its imports?
- Foreign direct investment
- Terms of trade
- Multinational corporation
- Trade deficit (correct)
What does the terms of trade represent?
What does the terms of trade represent?
- The quantity of goods a country produces for export
- The ratio of export volume to import volume
- The ratio of a country's export prices to import prices relative to a base value (correct)
- The amount of goods a country exports compared to what it imports
What does foreign direct investment involve?
What does foreign direct investment involve?
- Collaborating with multinational corporations
- Selling products in foreign markets
- Owning productive resources like land and factories in a foreign country (correct)
- Importing goods from foreign countries
Which term describes a company that has invested in production facilities and subsidiaries in foreign countries?
Which term describes a company that has invested in production facilities and subsidiaries in foreign countries?
Why is international trade important for our standard of living according to the text?
Why is international trade important for our standard of living according to the text?
Which sector benefits significantly from international trade according to the text?
Which sector benefits significantly from international trade according to the text?
Why might foreign firms be unable to pay even if they are willing to?
Why might foreign firms be unable to pay even if they are willing to?
What is one of the trade risk-reducing instruments mentioned in the text?
What is one of the trade risk-reducing instruments mentioned in the text?
Why do some economists support the concept of protection for infant industries?
Why do some economists support the concept of protection for infant industries?
What is the purpose of export credit insurance mentioned in the text?
What is the purpose of export credit insurance mentioned in the text?
What potential benefits do some economists believe trade restrictions can bring to a country?
What potential benefits do some economists believe trade restrictions can bring to a country?
How do evolving practices and market developments help firms in international trade?
How do evolving practices and market developments help firms in international trade?
Which of the following can result from imperfections in the market according to the text?
Which of the following can result from imperfections in the market according to the text?
What might happen if investors speculate against a currency due to perceived unsustainable exchange rates?
What might happen if investors speculate against a currency due to perceived unsustainable exchange rates?
How can moral hazard affect investors or countries according to the text?
How can moral hazard affect investors or countries according to the text?
What impact can sudden shifts in foreign capital flows have on a country dependent on external factors?
What impact can sudden shifts in foreign capital flows have on a country dependent on external factors?
What aspect of economic performance can globalization affect?
What aspect of economic performance can globalization affect?
Why does international financial cooperation become more important in a more integrated world according to the text?
Why does international financial cooperation become more important in a more integrated world according to the text?
What is the purpose of a Voluntary Export Restraint (VER)?
What is the purpose of a Voluntary Export Restraint (VER)?
What happens to the quantity imported when a tariff is placed on an imported good?
What happens to the quantity imported when a tariff is placed on an imported good?
Who gains from a tariff placed on an imported good?
Who gains from a tariff placed on an imported good?
What is the main impact of a quota on a good imported to a country?
What is the main impact of a quota on a good imported to a country?
What does the domestic government gain if it charges for import licenses to foreign countries?
What does the domestic government gain if it charges for import licenses to foreign countries?
What is an equivalent quota in relation to a given tariff?
What is an equivalent quota in relation to a given tariff?
What are 'global funds'?
What are 'global funds'?
Why have mutual funds become popular among investors?
Why have mutual funds become popular among investors?
What factor has led to the growth in the buying of foreign securities directly by individuals?
What factor has led to the growth in the buying of foreign securities directly by individuals?
Why do investors prefer investing in 'emerging country funds'?
Why do investors prefer investing in 'emerging country funds'?
What has been the trend in US investments outside the country since the mid-1970s?
What has been the trend in US investments outside the country since the mid-1970s?
How has globalization impacted investment trends?
How has globalization impacted investment trends?
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Study Notes
International Trade and Investment
- Trade deficit occurs when a country's exports are less than its imports
- Terms of trade: ratio of export prices to import prices, expressed relative to a base value of 100
- Foreign direct investment: ownership of productive resources in a foreign country
- Multinational corporation: a firm with foreign direct investment in one or more foreign countries
Importance of International Trade
- International trade is essential for our standard of living and daily activities
- Examples of international trade include:
- Toys and electrical equipment from Japan
- Clothing from India and UK
- Vehicles from Germany, Japan, and France using petrol from Saudi Arabia and India
- Tea from India, coffee from Brazil, whiskey from Scotland, and wine from various countries
Risks in International Trade
- Country risks include:
- Imposition or change of import tariffs or non-tariff barriers
- Quotas and subsidization of local producers
- Risk-reducing instruments and practices:
- Foreign exchange contracts to hedge against exchange rates risk
- Export credit insurance and letters of credit to reduce risks of nonpayment
Types of Trade and Capital Restrictions
- Reasons for trade restrictions:
- Infant industry protection
- Voluntary export restraint
- Economic implications of trade restrictions:
- Tariffs increase domestic price, decrease quantity imported, and increase domestic supply
- Quotas restrict quantity imported, increase domestic price, and grant import licenses to foreign countries
Mutual Funds and Globalization
- Mutual funds provide:
- Low-cost method for private investors to achieve portfolio diversification
- Opportunity to invest in foreign assets
- Growth in popularity of mutual funds due to:
- Increased income and desire for alternative investments
- Ability to reduce contracting and information costs
- Globalization of investment:
- US investments abroad increased over ten times since the mid-1970s
- Challenges and advantages of globalization, including bubbles, herding behavior, and speculative attacks
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