edwinesosa's version from 2015-05-02 20:09


Question Answer
3 Components of BOPcurrent account + financial account + capital account
elements of the current accountbalance of trade in goods + balance of trade in services + IPDs + government and individual transfers
elements of the financial accountFDI + portfolio investment ( foreigners depositing money in UK banks or buying bonds/shares) + Other eg speculators buying/selling currency
elements of the capital accountgovernment transfers + asset transfer with nationality change
causes of current account surplusweak exchange rate + high savings + international competitiveness + promote manufacturing sector (as easier to export)
causes of current account deficitstrong exchange rate + lack of international competitiveness + low savings + decline of manufacturing sector
problems with current account deficitproblems of current account deficitindicates lack of competitivess + caused by excessive consumer debt + harder too borrow if too large eg in brazil in 1980s + worse if fixed exchange rate
how CC deficit may not be probused to import capital goods + offset financial account + economy naturally self corrects
CC surplus probsexport dependence eg taiwan 60% of GDP is exports + deficit countries may put up protectionist policies
problems of global imbalanceslow interest rates causing bubbles due to either without inflation due to cheap imports from surplus asian countries or due to plentiful saving in surplus countries allowing low rates (due to high supply of capital for lending) + lack of consumer base when exports fall + economies that can't export out of trouble due to high consumption dependency
policies to reduce surplussell foreign currency + stipulate domestic saving eg cut income tax and improve social safety nets + remove protectionist policies
measures of international compewtitivenesscost competitiveness + price comp + non price comp
ways for firms to become more competitiverelocate production to low labour cost countries + innovate + new management tech + utilise latest tech + market research