Study

Chapter 2

International Flow of Funds Lecture Outline

Balance of Payments

Current Account Capital Account

International Trade Flows

Distribution of U.S. Exports and Imports U.S. Balance of Trade Trend Trade Agreements Trade Disagreements

Factors Affecting International Trade Flows

Impact of Inflation Impact of National Income Impact of Government Restrictions Impact of Exchange Rates

Correcting a Balance of Trade Deficit International Capital Flows

Why a Weak Home Currency is not a Perfect Solution Distribution of DFI by U.S. Firms Distribution of DFI in the U.S. Factors Affecting Direct Foreign Investment Factors Affecting International Portfolio Investment

Agencies that Facilitate International Flows How International Trade Affects an MNC’s Value

15

16

International Financial Management

Chapter Theme

This chapter provides an overview of the international environment surrounding MNCs. The chapter is macro-oriented in that it discusses international payments on a country-by-country basis. This macro discussion is useful information for an MNC since the MNC can be affected by changes in a country’s current account and capital account positions.

Topics to Stimulate Class Discussion

1. Is a current account deficit something to worry about? 2. If a government wants to correct a current account deficit, why can’t it simply enforce restrictions on imports? 3. Why don’t exchange rates always adjust to correct current account deficits?

POINT/COUNTER-POINT: Should Trade Restrictions be Used to Influence Human Rights Issues?

POINT: Yes. Some countries do not protect human rights in the same manner as the U.S. At times, the U.S. should threaten to restrict U.S. imports from or investment in a country if it does not correct human rights violations. The U.S. should use its large international trade and investment as leverage to ensure that human rights violations do not occur. Other countries with a history of human rights violations...