Balanza de pagos Flashcards
(14 cards)
What does it mean if the United States imports more than it exports?
The supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus.
What is likely to happen in a country experiencing a significant balance-of-payments surplus?
Expand imports, offering marketing opportunities for foreign enterprises.
Unlikely to impose foreign exchange restrictions.
What does the ‘J-curve effect’ show?
The initial deterioration and the eventual improvement of a country’s trade balance following a currency depreciation.
How can a currency depreciation make a trade balance worse in the short run?
If there is no domestic producer of an import.
What happens if an increase in the interest rate is matched by an expected depreciation in the local currency?
Traders will probably be tempted to find another country to invest in.
The interest rate increase per se will not be enough to spark capital flow into the country.
What is most indicative of the pressure that a country’s currency faces for depreciation or appreciation?
The official settlement balance (Cuenta de reservas).
What is the difference between Foreign Direct Investment and Portfolio Investment?
Portfolio Investment mostly represents the sale and purchase of foreign financial assets such as stocks and bonds that do not involve a transfer of control.
When does Foreign Direct Investment (FDI) occur?
When an investor acquires a measure of control of a foreign business.
When there is an acquisition, by a foreign entity in the U.S., of 10 percent or more of the voting shares of a business.
What are transactions in currency and bank deposits sensitive to?
Changes in relative interest rates and the anticipated change in exchange rate.
What could continued U.S. trade deficits and currency diversification by foreigners lead to?
Could further diminish the position of the dollar as the dominant reserve currency.
Could affect the value of U.S. dollar (e.g. through the currency diversification decisions of Asian central banks).
Could lend steam to the emergence of the euro as a credible reserve currency.
What is the balance of payments identity?
BCA + BKA + BFA + BRA = 0.
The statistical discrepancy = -BCA - BKA - BFA - BRA.
What does the economic theory of mercantilism hold?
A continuing trade surplus should be a government’s major policy goal.
How could a trade deficit be self-correcting in the long run?
If the deficit exists because of the import demand for capital goods.
What is more important than the absolute size of a country’s balance-of-payments disequilibrium?
The nature and cause of the disequilibrium.
