Foreign Trade Dersi 2. Ünite Sorularla Öğrenelim

What do debit items in the balance of payments accounting denote?

A payment by the country to a foreigner.

How many basic groups (accounts) summarizing a nation’s balance of payments are there?

There are four basic groups: Current account, capital account, financial account and reserve assets.

What is the main aim of portfolio investments?

To obtain income financially; they do not want to control or takeover the company whose shares or bonds are bought.

What does a capital account consist of? 

It fundamentally consists of unilateral transfers occurred in the country with the rest of the world.

What do credit items in the balance of payments accounting denote?

A payment by a foreigner into the country. 

What do official international reserve assets refer to?

They are the quasi money assets which are held by government and are accepted in international payments.

What is the net value of financial assets and similar claims that a country bought and sold with the rest of the world?

It (except the official international reserve changes) states the private finance account balance in the balance of payments. 

What does the balance of payments refer?

It refers to an accounting system informing the international transactions of a country.

For what types of investments does a country use her national savings?

For two different types of investments:

1. To invest for domestic capital accumulation (domestic investments

2. To invest abroad for obtaining an income flow (net foreign investments).

What create long term capital flows among countries?

buying and selling transactions of bonds and other long term securities internationally.

Which values are recorded in the balance of payments accounting?

The value of incoming flows to and the value of outgoing flows from the country are recorded.

What are portfolio investments?

The purchase of securities such as bonds and stocks for financial purposes by foreign investors.

With what two channels direct investments create their effects on the balance of payments?

With two different channels: Financial flow and trade flow.

Which two important developments which made the international portfolio diversification possible caused the increase in international capital flows during 90s to occurre?

(1) Developing countries had considerably increased their participation to international economic integration by liberalizing their financial markets, foreign exchange regimes and capital accounts and also opening them for the foreigners.

(2) Developing countries had also increased investment opportunities by privatizing their public enterprises and encouraging the deepening in financial markets.

What do government capital movements refer to? 

They refer to capital movements arising from lending and borrowing transactions among governments.

What are foreign direct investments?

The investments made by individuals or firms through buying a firm, providing the establishment capital for a new company or increasing the capital of an existing company in other countries.

What does current acccount involve?

It involves all credit and debit items arising from export and import transactions of all goods and services, income receipt, and payment transactions in the country.

Whay is capital account sometimes included in the current account balance instead of being considered as a separate account?

Because it usually has a small balance relative to current account.

When does a banking crisis arise?

When the banking sector in a country is unable to fulfill its lending function and confronts with the risk of insolvency.

What sources may the vulnerability of a country arise from?

(1) Inconsistent and unsustainable monetary and fiscal policies followed by the government, (2) volatility of foreign capital flows that the country receives.

What are short term capital movements?

They are capital flows based on debt instruments with a maturity less than one year.

What is speculative attack?

The speculation activities in which speculators who realize the existence of a price increase in the market may intend to obtain excessive profit by engaging regular buying to create further increase in the price and selling when the targeted price is achieved.

When does a foreign exchange crisis occur?

When there is an unexpected and sudden collapse of domestic currency unit (high level of depreciation in the flexible exchange rate regime or high level of devaluation in the fixed exchange rate regime).

When does a debt crisis occur?

When the debtor cannot fulfill his/her obligations (interest and principal payment) on time and a need shows up to restructure the debt.

How are net foreign investments in a country measured?

By subtracting the increase in financial liabilities from the increase in financial assets.