Basic of international trade and finance, International finance
CAPITAL AND FINANCIAL ACCOUNT BALANCE
CAPITAL ACCOUNT BALANCE FINANCIAL ACCOUNT BALANCE
- NET CAPITAL ACCOUNT TRANSACTIONS - NET FINANCIAL FLOWS
ASSETS BOUGHT FROM FOREIGN COUNTRY
SOLD TO FOREIGN OWNERS (AN HOTEL
LOCATED IN ITALY BOUGHT FROM U.S. IS AN
OUTFLOW OF FUNDS - AN HOTEL LOCATED
IN U.S. AND SOLD TO AN ITALIAN IS AN INFLOW
- NET INTERNATIONAL FLOW OF FINANCIAL DERIVATIVES
The OFFICIAL SETTLEMENTS BALANCE otherwise called BALANCE OF PAYMENTS, is the difference
between the U.S. increase of official reserve assets and the foreign increase of official reserve
FOREIGN DIRECT INVESTMENT = When HONDA build a production facility in Ohio, Japan does a
foreign direct investment which is different fron PORTFOLIO INVESTMENT which is when a
foreigner buies securities or shares in GENERAL MOTORS.
ISTAT = calculate the balance of payment.
Every central bank owns a sum of foreign currency to sell it and demand for its own currency, to
protect its economy OFFICIAL RESERVE ASSETS
BTP = BUONI DEL TESORO PLURIENNALI (TREASURY BOND IN U.S.A.) 3
NOMINAL EXCHANGE RATE e = TASSO DI CAMBIO
How many units of a foreign currency can I get for one unit of my domestic currency?
REAL EXCHANGE RATE e = BENI E SERVIZI
How many units of a foreign good can I get for one unit of my domestic good?
In a FLEXIBLE or FLOATING EXCHANGE RATE SYSTEM e cannot remain the same. It changes
according to the supply and demand in the foreign exchange market.
In a FIXED EXCHANGE RATE SYSTEM e cannot change because it has been fixed by the central
bank (no financial risks).
= is a fixed exchange rate system working until 1972, the collapsed. In this
BRETTON WOODS system the value of foreign currencies were fixed in terms of U.S. dollar
which was set 35$ per ounce of gold. Today just some small realities, like
African countries, have a fixed exchange rate system.
SPOT e = how many dollars for 1€ NOW
FORWARD e = how many dollars for 1€ in the FUTURE but:
nom it is taken into consideration by business men and implies a contract.
The two parties predeterminated the rate at which do the transaction in (i.e.) 90
Today they sign a contract in which is predeterminated the exchange rate (they have decided
together) at which buy foreign currency at a specified time in the future.
HOW DO THEY THIS? In order to expectations. They have a look at the actual market and do
expectations about the future situation.
In a FLEXIBLE EXCHANGE RATE SYSTEM we talk about:
APPRECIATION or DEPRECIATION 4
APPRECIATION = a currency APPRECIATES when with few units you can buy unit of the foreign
Ex. 1,415$ = 1€ 1,225$ = 1€
$ has appreciated, risen, strengthened/ € has depreciated, fallen, weakened
DEPRECIATION = a currency DEPRECIATES when you need more units to buy one unit of the
Ex. 1,225$ = 1€ 1,415$ = 1€
When a currency appreciates or depreciates the other currency related to it depreciates or
appreciates in order.
Se il dollaro guadagna un APPREZZAMENTO, vuol dire che servono poche unità di dollar per
comprare un euro. Allo stesso tempo, l’euro subisce un DEPREZZAMENTO nei confronti del dollar
perché viene scambiato per poche unità di dollaro. Diremo quindi che il dollar è più forte rispetto
all’euro, e l’euro si è indebolito nei confronti del dollar.
In a FIXED EXCHANGE RATE SYSTEM we talk about:
REVALUATION = STRENGTHENING OF THE CURRENCY when e INCREASES
DEVALUATION = WEAKENING OF THE CURRENCY when e DECREASE
CURRENCY UNION = a group of countries decide to adopt the same currency (EUROZONE)
DOLLARIZATION = when one country decide to adopt the currency of another country (which
have the dollar as its own currency and not the Danish krone, i.e.)
IMF WTO/ ICE/ SACE/ WB/ ECB
CAPITAL CONTROL = regulation laws to regulate the inflows and outflows.
1957 = TREATY OF ROME trattato che insieme al Trattatto che istituisce la Comunità europea
del carbone e dell’acciaio (TRATTATO CEEA, CECA o EURATOM e
firmato nel 1951) istituisce la Comunità europea. Conosciuto anche
con il nome di TCE O TFUE (Trattato sul funzionamento dell’UE).
coeteris paritus = elements should be constant. 5
P = all the goods produced in the home country.
Pf = all the goods produced in the foreign country.
e = the number of foreign goods someone gets in exchange for one domestic good.
Ex. Japanese hamburger American hamburger
? how many for 1 unit?
If the real exchange rate is equal (one to one – one unit of a good in exchange of one unit of the
same good) no imports and exports are encouraged.
To calculate the P we use the following formula:
Real exchange rate = 1 P = Pf P = 800 yen = 10$
e 80 yen/1$
So to get the home price for one hanburger we can divide the foreign price of one hamburger to
the e nom.
is the price of the jap hamburger expressed in terms of dollars
e = e = 80 2 = 0,20 Japanese hamburger
nom Pf 800
To get the real exchange rate we use the formula above.
You can calculate the nominal exchange rate with this formula:
e = 800 = 80
e = Pf nom
PPP = PURCHASING POWER PARITY both domestic and foreign goods must have the same
price. This is an ideal and not real situation. So prices of
the same good could be almost the same or closer
between them but not exactly the same. 6
+1 anno fa
I contenuti di questa pagina costituiscono rielaborazioni personali del Publisher bina88 di informazioni apprese con la frequenza delle lezioni di International finance e studio autonomo di eventuali libri di riferimento in preparazione dell'esame finale o della tesi. Non devono intendersi come materiale ufficiale dell'università Padova - Unipd o del prof Meacci Ferdinando.
Acquista con carta o conto PayPal
Scarica il file tutte le volte che vuoi
Paga con un conto PayPal per usufruire della garanzia Soddisfatto o rimborsato