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Question 1

Balance of payments

Answer 1

• Summary of transactions between home and foreign residents over a specific time
• Report of what a country is selling, importing, exporting, of products and services.
• It includes…
  Inflow > credit
  Outflow > debt

Question 2

Parts of balance of payment

Answer 2

1. Current account: exports and imports payments of goods and services
2. Capital account: governmental transactions
3. Financial account: summary of investments in and out

Question 3

Financial account - Types of investment

Answer 3

• Portfolio investments: the investor only seeks a return in interests and payments > no management in the investments > less than 10%
• Direct investments: the investor has a whole owned subsidiary > more than 10%

Question 4

• Portfolio investments

Answer 4

the investor only seeks a return in interests and payments > no management in the investments > less than 10%

Question 5

• Direct investments

Answer 5

the investor has a whole owned subsidiary > more than 10%

Question 6

Cash Flow and Valuation

Answer 6

You evaluate a company and observe how much will it gain and be worth in the next 10 years. They don’t care about the present = but the future
A company is worth what a company is able to sell in the next years.

Question 7

Factors affecting international trade flows/ balance account

Answer 7

• Impact of Inflation: high inflation > people will buy products overseas. Exports will decrease
• Impact of National Income: income increase = consumption increase = imports increase
• Impact of Government Restrictions: A government may reduce its country’s imports by imposing a tariff, or by imposing trade restrictions ( health and safety )
• Impact of Exchange Rates: If a country’s currency begins to rise in value, its current account balance will decrease as imports increase and exports decrease