Chapter 2 International Flow of Goods, Services and Investments

The International Financial
Part 1 Environment
Multinational
corporation (MNC)
Foreign exchange Markets
Exporting and Imports and Dividend Investing and

importing exports remittance borrowing
and lending
Foreign products markets Foreign International financial markets

subsidiaries
For use with International Financial Management, 2

5th edn, ISBN 978-1-4737-7050-8 © Jeff Madura and Roland Fox
Chapter 2
International Flow of Goods, Services and Investments
For use with International Financial Management,

Chapter Objectives
• Explain the key components of the balance of payments.
• Explain how the international trade flows are influenced by economic and
political factors.
• Explain how the international capital flows are influenced by country
characteristics.

Balance of payments & Exchange rate
• Many MNCs are heavily engaged in international business, such as exporting,
importing, or direct foreign investment in foreign countries.
• The transactions arising from international business cause money flows from one
country to another (i.e., balance of payments).
• The balance of payments can indicate the volume of transactions between specific
countries and may even signal potential shifts in specific exchange rates.
• Thus, it can have a major influence on the long-term planning and management
by MNCs.

Balance of Payments
• The balance of payments is a summary of transactions between domestic and
foreign residents for a specific country over a specified period.
• It accounts for transactions by businesses, individuals, and the government.
• Inflows of funds generate credits for the country’s balance, while outflows of
funds generate debits.
• A balance-of-payments statement can be broken down into various components.

 Current Account
 Capital Account
 Financial Account
Current Account
• The current account summarizes the flow of funds between one
specified country and all other countries due to:
1. Purchases of goods or services; or

2. Cash flows generated by income-producing financial assets; or
3. Cash flows from aid, grants, and gifts
• Key components of the current account:

1. Balance of trade
2. Factor income
3. Transfer payments

Components of Current Account (1)
1. Balance of trade - - > Exports/Imports
• Merchandise exports and imports represent tangible products, such as computers
and clothing, that are transported between countries.
• Service exports and imports represent tourism and other services (such as legal,
insurance, and consulting services) provided for customers based in other countries.
Examples: Medical treatment, broadcasting a sports event etc.
• The difference between total exports and imports is referred to as the balance of
trade.
• Trade deficits (developing countries) Vs. Trade surplus (developed countries)

Components of Current Account (2)
2. Factor income (Primary Income payments)
• Represents income (interest and dividend payments) received by investors
on long term foreign investments in financial assets (stocks, bonds) as well
as on physical assets (funds remitted by subsidiary company).
3. Transfer payments (Secondary Income payments)

• Represents transfer payments in the form of aid, grants, and gifts
(individual remittances) from one country to another.
Non-market transfers : when financial resources are provided without
purchasing goods and services.

13
Financial Account (Investments)
• The financial account summarizes the flow of funds resulting from the sale and
purchase of assets (financial or non-financial) between one specified country and
all other countries.
• The key components of the financial account are:
1. Direct foreign investment

2. Portfolio investment
3. Other capital investment
4. Reserves
5. Errors and Omissions

Components of Financial Account
1. Direct foreign investment
• Investments in fixed assets (land, building, plant) in foreign countries that results in transfer of
control.
 A firm’s acquisition of a foreign company, its construction of a new manufacturing plant, or its
expansion of an existing plant in a foreign country.
2. Portfolio investment
• Transactions involving long term financial assets (such as stocks and bonds) between countries
that do not affect the transfer of control.
A purchase of Heineken (Netherlands) stock by a U.S. investor is classified as portfolio investment

because it represents a purchase of foreign financial assets without changing control of the
company.
If a U.S. firm purchased all of Heineken’s stock in an acquisition, this transaction would result in a
transfer ofInternational
For use with control Financial
and therefore
Management,would be classified as direct foreign investment.
Components of Financial Account
3. Other investments
• Transactions involving short-term financial assets (such money market securities e.g., derivatives)
between countries.
4. Reserves
• Changes in reserves (currency and gold).
5. Errors and omissions
• The negative balance on the current account should be offset by a positive balance on the capital and
financial account (borrowings/investments).
• However, the offsetting effect is seldom perfect because the measurement errors can occur when
attempting to measure the value of funds transferred into or out of a country
• Example: The value of export of financial services (e.g., payment to Bloomberg) is sometimes difficult to
document.
Capital Account (Relatively minor amount)
• It includes the value of financial asset transferred across country borders by
people who move to a different country (non-resident).
• Example: A non-resident in USA buys stocks or bonds from France.
• It includes the value of intellectual property rights (patents, trademarks,

franchises) that are transferred across country borders.
 The sale of patent rights by a U.S. firm to a Canadian firm reflects a credit to the U.S. balance-
of-payments account.
 The acquisition of drilling rights by a U.S. oil company to an overseas location represents a
debit to U.S. balance-of-payment account.
• It also includes capital transfers such as:

ForDebt forgiveness
use with International Financial Management,
5Conditional
th
foreign ©aid
edn, ISBN 978-1-4737-7050-8 Jeff (specific for aFoxproject)
Madura and Roland
UK balance of payments 2018
Note: Negative
represents a
demand for
foreign currency;
positive
represents a
demand for home
currency.

The relation between the current and
financial account
The balance of payments account can be described in three broad categories:
Type I: Current account in surplus, financial account in deficit

 Developed (European) - - - > Trade surplus, Investments out
 Developing (China) - - - > Trade surplus, Investments out
Type II: Current account in deficit, financial account in surplus

 Developing - - ->Trade deficit, Borrowings in
 Developed (US, UK) - - ->Trade deficit, Investments in
Type III: Current account and financial account in balance.

Types of balance of payments

International Trade Flows
Current account in surplus, financial account in deficit (Type 1)
• There is a good argument to support the view that this Type 1 scenario is
appropriate for a developed country.
• A mature economy should be able to generate surplus goods and surplus savings.
• An alternative, less appealing scenario, is that of a developing country that has a

surplus on the current account (a positive figure), driven by the need to earn
foreign currency in order to repay inward loans on the financial account
(equivalent to investment out, a balancing negative figure).

Current account in deficit, financial account in surplus (Type 2)
• For a developing country, the current account deficit would ideally be due to
imports of machinery.
• The finance for such imports would be through international borrowing resulting
in a surplus on the financial account (a net demand for home currency to invest in
that country).
• A deficit on the current account can, however, all too easily be due to high
interest payments on loans or import of relatively unproductive goods.
• Developed countries often over-consume resulting in excess imports leading to a
current account deficit.
• This deficit is financed by inward investment creating a demand by foreign
currency for home currency to invest in deposit accounts, shares and bonds of
the developed country – the US is often cited as an example.
BOP transactions and Foreign exchange
(UK)
International trade transactions with UK as Demand (outside) or supply Exchange rate of British
the home country (inside) of British pounds pound
UK importer purchases radios form Singapore Supply of British Pounds Decrease

increases
Spanish importer pays UK company for goods Increase Demand for British Increase
supplied pounds
French company pays insurance premium to Increase Demand for British Increase
Lloyds insurance in London pounds
Foreign workers resident in the UK send money Supply of British pounds Decrease
home increases
French company buys shares on the London Stock Increase Demand for British Increases
Exchange pounds
UK company loans money to its American Increase Supply of British Decrease
subsidiary pounds
Australian subsidiary pays dividends to its UK Increase Demand for British Increase
parent company pounds
Italian company lends money to its UK subsidiary Increase Demand for British Increase
pounds

Exhibit 2.1 A foreign currency transaction
HOME CURRENCY FOREIGN CURRENCY
TRANSACTION
(currency held by residents of (currency held by residents of
(UK as the home currency)
home country) foreign country)
Home currency supplied to locals

mainly to buy foreign goods or to
invest abroad For every £1 supplied for foreign
(transactions reordered a ‘-’ in the Amount of foreign
currency (-£1)
balance of payments currency depends on
the exchange rate – this
changes on a daily basis
Home currency demanded by £1 must be demanded by
foreigners mainly to buy local goods foreign currency(+£1)
or to invest locally
(transactions reordered a ‘+’ in the
balance of payments
Transactions should
balance and total £0
Notes:
• The balance of payments is a record of the demand and supply of currency held by home residents in transactions with –non residents.
• Particularly for Eu countries, both the home currency and the foreign currency could be euros.

The exchange rate and the Balance of
Payments Revaluation
Devaluation
Decrease in the value of the £ Increase in the value of the £
in relation to other currencies, Current spot in relation to other currencies,
e.g. 1.20 euros = £1 rate, e.g. e.g. 1.60 euros = £1
1.40 euros = £1
Imports are more expensive, Imports are cheaper, demand
demand falls and probable fall increases and probable rise in
in total cost of imports. total cost of imports.
Exports cheaper for foreign Exports more expensive for

buyers demand increases and foreign buyers, demand falls
certain rise in £ value exports. and certain fall in £ value
exports.
Probable current account
improvement Probable current account
worsening
Notes:
• The total value of imports depends on the quantity reaction to changes in their price (elasticity) due to the change in the value of the pound.
• Although the increase and decrease in exports is certain, the size if the change is not certain.
Marshall Lerner conditions for devaluation
to benefit the Balance of Payments
For a devaluation and treating all numbers as positive, the percentage
reduction in the quantity of imports plus the percentage increase in exports
should be greater than the devaluation.

The Marshall Lerner conditions. An example showing that total
elasticities greater than 1 (elastic) benefit the current account, and a
total elasticities less than 1 (inelastic) worsen the current account.
Notes based on column numbers:

1. The opening current account is the same in both scenarios.
2. Devaluation increases the cost of imports and decreases the cost of exports; for illustration, devaluation is the same in both scenarios.
3. Exports and imports in the home price after devaluation assuming no quantity reaction. The home price of exports in unchanged as devaluation only affects the price of the currency. The home price
increases as foreign currency is more expensive.
4. The quantity reactions differ and are choses to illustrate the effect of elasticity
5. Calculations of the closing current account for the inelastic scenario is 100 x(1+0.015) =101.5 then 105x(1-0.02)=102.9 with similar calculations for the inelastic scenario.
6. The negative signs are omitted in the fractions as, for example –(1.5/5)=1.5/5=O.3 and so on. In the literature the first negative is sometimes omitted and elasticity is reported as negative.

• Some countries are more dependent on trade than others.
o The trade volume of a European country is typically between 30–40 per cent
of its GDP
o While the trade volume of US (and Japan) is typically between 10–20 per cent
of its GDP.
• Nevertheless, the volume of trade has grown over time for most countries.

Direction of trade statistics 2018



Trends in trade

Distribution of exports and imports for major
countries
• The themes to note from the bar charts are:
o the high levels of trade with Asia

o the generally low level of trade with Africa compared to other countries
o the much greater significance of the Pacific Rim (Japan and Asia) than Europe
for the US
o the persistence of traditional trading partners. China–Japan, South Africa–
Africa, UK–France and Germany.

Events That Increased Trade Volume
• Fall of the Berlin Wall (1989):
Led to improved relations between Eastern Europe and Western Europe.
Encouraged free enterprise in all Eastern European countries and the
privatization of businesses that were owned by the government.
Led to reductions in trade barriers in Eastern Europe.
Many MNCs began to export products there, and others capitalized on the
cheap labor costs by importing supplies from that region.
• North American Free Trade Agreement (NAFTA) 1993:

 The removal of trade barriers allowed U.S. firms to penetrate product and labor
markets that previously had not been accessible.
 Allowed Mexican firms to exports products to US that were inaccessible
previously

Events That Increased Trade Volume
• General Agreement on Tariffs and Trade (GATT): (within a month of NAFTA)
 Called for the reduction or elimination of trade restrictions on specified
imported goods over a 10-year period across 117
 World Trade Organization 1995, 164 members now.
• Single European Act 1987 and the European Union 1993:

 In the late 1980s, industrialized countries in Europe agreed to make regulations
more uniform and to remove many taxes on goods traded among themselves.
 The act allowed firms access to supplies from firms in other European countries.
• Inception of the Euro (1999):

 Reduced costs and risks associated with converting one currency to another.

Trade unfairness
Despite trade agreements, many countries still try to gain unfair advantage
(details coming up)…
It is unfair if firms based in one country:

o are subject to fewer environmental restrictions.
o are not subject to child labor laws.
o can bribe government to win a large contract.
o receive subsidies from the government, if they export the products.
o receive tax breaks if they are in specific industries.

Trade unfairness
Other trade-related issues include (trade disagreements):
o The use of trade policies for political reasons.

o Disagreements between the EU and US (farm subsidies).
o Tariff wars between the US and China.

Factors Affecting International Trade Flows
(Balance of Trade)
• Impact of Cost of Labor
• Impact of Inflation
• Impact of National Income
• Impact of Credit Conditions
• Impact of Government Restrictions
• Impact of Exchange Rates
• The factors interact, such that their simultaneous influence on the balance
of trade is complex.
(1)
• Impact of Cost of Labor
o Firms in countries where labor costs are low commonly have an advantage when competing
globally especially in labor intensive industries (non-robotic).
o China, India, Thailand, Vietnam, Indonesia, Philippines - - > Increase exports
• Impact of Inflation
o In response to local inflation, goods from foreign country become cheaper.
o Therefore, consumer will purchase more goods overseas, and hence imports will rise,
decreasing the current account balance.
• Impact of National Income

o As the real income level rises, so does consumption of foreign goods (imports increases).
o Therefore, a relative increase in a country’s income level (money supply) will decrease its
current account balance, as imports increase.
(2)
• Impact of Credit Conditions (Loanable funds)
o When economic conditions weaken, credit conditions tend to tighten, because
corporations are then less able to pay back debt.
o In that case, banks are less willing to provide financing to MNCs
o It can reduce corporate production (decrease export) and further weaken the
economy.
o As MNCs reduce their production, they also reduce their demand for imported
supplies.
o The result is a decline in international trade flows (both exports and imports).
• Impact of Exchange Rates

o If a country’s currency begins to rise in value, overseas goods will become cheaper,
which will give rise to imports.
o However, as the country’s currency strengthens, exports will become more expensive
and so the export will decrease.
(3)
• Impact of Government Policies
o Each country’s government wants to increase its exports as more exports lead to more
production and income, which create more jobs.
o Country’s government generally prefer that its citizens and firms purchase products and services
locally because doing so creates local jobs.
Governments of countries with a weak economy tend to form policies that are intended to boost
their exports or reduce imports.
There are several types of government policies often used to improve the balance of trade
and thereby creating jobs within a country (Next topic…).
Impact of Government Policies (1)
1. Restrictions on Imports:
• Taxes (tariffs) on imported goods increase prices and limit consumption (e.g., cars)
• Quotas limit the volume of goods a firm can import.

1. Restrictions on Imports (Cont.…) - - - > A Questionable Govt. Policy

2. Subsidies for Exporters:

• Government subsidies help firms produce at a lower cost than their global
competitors.
Subsidies by US Govt. on agriculture products, such as soyabeans and corns, make their production
cheaper for exports.

3. Restrictions on Piracy:
• If a government that does not act to minimize piracy may indirectly reduce
imports.
• Piracy is one reason why the United States has a large balance-of-trade deficit
with China - - - > Intellectual property rights

4. Environmental Restrictions:
• Environmental restrictions impose higher costs of productions on local firms
(measures taken to avoid pollution).
• These costs can place them at a global disadvantage compared to firms in
other countries that are not subject to the same restrictions.
5. Labor Laws:
• Countries with more restrictive laws will incur higher expenses for labor,
other factors being equal.
• In addition, some countries have more restrictive child labor laws.
• These costs can place them at disadvantage compared to firms in other
countries that are not subject to the same restrictions.

6. Government Ownership
• Some governments maintain ownership in firms that are major exporters and therefore
may restrict any foreign investments.
 The U.S. government bailed out General Motors in 2009 by investing billions of dollars to purchase
a large amount of its stock.
 The Chinese government has granted billions of dollars of subsidies over the years to its auto
manufacturers and auto parts suppliers.
7. Country’s trade requirements:

• MNCs must follow too many Govt. regulations before exports are allowed to a specific
country (e.g., Licenses, certificates, lab tests)- - - >Long waiting period
• Govt. officials purposefully respond slowly to the request of MNCs to export product to
their country - - - >They want the local companies keep the market share.
• Purposeful delays of govt. could hinder international trade and so protect local jobs.
8. Tax Breaks:
• The government in some countries may allow tax breaks (lower taxes) to
firms that operate in specific industries.
• Though not necessarily a subsidy, but still a form of government financial
support that might benefit many firms that export products.
9. Country Security Laws:

• Governments may impose certain restrictions when national security is a
concern, which can affect on trade.
 For example: US Govt. can restrict the export of military planes that are produced by
U.S. firms.
 May US firms in China has to transfer technology while doing business with a Chinese
company and which is subject to US Govt. approval
Correcting a Balance of Trade Deficit (1)
• How “exchange rates” may correct a balance of trade deficit?
• Trade imbalance will affect the demand and supply of the currencies involved
• A floating exchange rate system may correct a trade imbalance automatically
• When a home currency is exchanged for a foreign currency to buy foreign

goods (imports), then the home currency faces downward pressure, leading
to increased foreign demand (exports) for the country’s products.
• This will only work when the country has sufficient production of goods and
services (along with competitiveness) to fulfill the global demand.

Correcting a Balance of Trade Deficit (2)
• Why “exchange rates” may not correct a balance of trade deficit?
• Floating exchange rates will not automatically correct any international trade
balances when other forces off-set the effect of downward currency pressure
(e.g., FDI and Portfolio investments).
• Example

Why a Weak Home Currency isn’t a Perfect
Solution? (1)
• Counter-pricing by competitors
o Foreign companies may lower their prices to remain competitive.
• Not weakens against all currencies

o A country’s currency need not weaken against all currencies at the same time.
o A country that has a balance-of-trade deficit with many countries is unlikely to
reduce all deficits simultaneously.
• Intra-company trades
o Many firms purchase products that are produced by their subsidiaries.
o These transactions are not necessarily affected by currency fluctuations.
Why a Weak Home Currency isn’t a Perfect
Solution? (2)
• Pre-arranged international trade transactions
o International transactions cannot be adjusted immediately as importers and
exporters agree to complete them (no substitutes in short-run).
o When the British pound weakens, the trade balance further deteriorates in
short run (due to expensive imports) before the reversal.
o There is a lag time between a weaker British pound and increased foreign
demand..
o The lag time between weaking of British pound and increased demand of
British exports has been estimated to be 18 months or longer (J-Curve effect).

The J-Curve Effect

Example : Reaction of US Vs. EU exporters on currency devaluation

Exchange Rates and International Friction
• All governments cannot weaken their home currencies simultaneously.
• Actions by one government to weaken its currency causes another country’s

currency to strengthen.
• As consumers in the country with the stronger currency are enticed by the new
exchange rate to purchase more imports….
• …….more jobs may be created in the country with the weak currency and jobs may
be eliminated in the country with the strong currency.
• Government attempts to influence exchange rates can lead to international disputes.

Example: Artificial Devaluation of Chinese Yuan

Example: Artificial Devaluation of Chinese Yuan –
Counter Arguments

Factors Affecting FDI (more than 10%
ownership)
• Changes in Restrictions (Liberalization)
o New opportunities may arise from the removal of government barriers.
o Many U.S.-based MNCs have penetrated in less developed countries such as Argentina, Chile,
China, Hungary, India, and Mexico.
• Privatization
o It allows for greater international business because foreign firms can acquire operations sold
by national governments.
o Managers of privately owned businesses are motivated to ensure profitability, further
stimulating DFI.
• Potential Economic Growth

o Countries that have higher potential for economic growth are more attractive.
o Firms recognize the possibility of capitalizing on that growth by establishing more business
there.
Factors Affecting FDI (more than 10%
ownership)
• Tax Rates
o Countries that impose relatively low tax rates on corporate earnings are
more likely to attract FDI.
o When assessing the feasibility of DFI, firms estimate the after-tax cash
flows that they expect to earn.
• Exchange Rates
o Firms typically prefer to invest in countries where the local currency is
expected to strengthen against their own.
o Under these conditions, they can invest funds to establish their
operations in a country at a time when that country’s currency is
relatively cheap (weak).
Factors Affecting International Portfolio Investment
(no management interest/no control)
• Tax Rates on Interest or Dividends
o Investors will normally prefer countries where the tax rates are relatively low.
o Investors assess their potential after-tax earnings from investments in foreign
securities.
• Interest Rates
o Money tends to flow to countries with high interest rates.
o High expected rate of return.
• Exchange Rates
o Foreign investors may be attracted if the local currency is expected to
strengthen.
Economic Theories of International Trade
and Investment
• Mercantilism is the oft-expressed view that exports are good and
imports are somehow bad. This is in contrast to free trade arguments
that deficits can still enhance a country’s wealth.
• Theory of absolute and comparative advantage. Countries should
produce either what they are better at than other countries
(absolute) or if that is not possible what they are least bad at
producing (comparative). That way the world ‘cake’ is larger and all
countries can benefit through trade.

Economic Theories of International Trade
and Investment (2)
• Heckscher-Ohlin theorem. As well as productivity, it may be the case
that resources for production are more abundant in some countries
than others (even though less productive). A country with less
productive agriculture may have extensive land and be a net exporter
of food.

Business Theories
International Product Life Cycle

Agencies that Facilitate International Flows (1)
International Monetary Fund (IMF)
• The IMF encourages internationalization of businesses through surveillance, as
well as financial and technical assistance.
• Its compensatory financing facility attempts to reduce the impact of export
instability on country economies.
• The IMF adopts a quota system, depending on which each member can borrow
funds.
• The IMF typically specifies economic reforms that a country must satisfy in order
to receive IMF funding, which is meant to ensure that the country uses the funds
properly.

Agencies that Facilitate International Flows
(2)
World Bank
• This International Bank for Reconstruction and Development (IBRD) makes loans
to countries to enhance their economic development.
• The World Bank has been successful at reducing extreme poverty levels,
increasing education, preventing the spread of deadly diseases, and improving
environmental conditions.
• Its Structural Adjustment Loans (SALs) are intended to enhance a country’s long-
term economic growth.
• Funds are spread through co-financing agreements with official aid agencies,
export credit agencies, and commercial banks.

Agencies that Facilitate International Flows
(3)
Multilateral Investment Guarantee Agency
• Established by the World Bank, the MIGA helps develop international trade
and investment by offering various forms of political risk insurance.

World Trade Organization
• The WTO was established to provide a forum for multilateral trade negotiations
and to settle trade disputes.
• The WTO began operations in 1995 with 81 member countries, and more
countries have joined since then.
• Member countries are given voting rights that are used to render verdicts on
trade disputes and other issues.
• World trade agreements have been signed among countries, and these
agreements provide the legal foundation for facilitating international trade.
• Such agreements articulate how international trade must be executed so as not
to violate specific social and environmental standards.
International Financial Corporation
• The IFC promotes private enterprise within countries through loan
provisions and stock purchases thereby becoming a part owner or in some
cases as a creditor.
• The IFC typically provides 10 to 15 percent of the necessary funds to the private
enterprise projects in which it invests.
International Development Association

• The IDA extends loans at low interest rates to poor nations that cannot
qualify for loans from the World Bank.

Bank for International Settlements
• The BIS is the ‘central banks’ central bank’ and ‘lender of last resort’.
• It serves central banks of countries in their pursuit of financial stability.
• Basel-I, II, III
Regional development agencies

Inter-American Development Bank (Latin America)
Asian Development Bank (Asia)
African Development Bank (African countries)
European Bank for Reconstruction and Development (Eastern Europe)
Discussion Question
• What is the international trade policy of [Your country]?
• Provide pros and cons of the international trade policy of [Your
country].


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The International Financial

Foreign exchange Markets

Exporting and Imports and Dividend Investing and

Foreign products markets Foreign International financial markets

For use with International Financial Management, 2

International Flow of Goods, Services and Investments

For use with International Financial Management,

For use with International Financial Management,

For use with International Financial Management,

• It accounts for transactions by businesses, individuals, and the government.

• A balance-of-payments statement can be broken down into various components.

1. Purchases of goods or services; or

• Key components of the current account:

For use with International Financial Management,

• Trade deficits (developing countries) Vs. Trade surplus (developed countries)

3. Transfer payments (Secondary Income payments)

For use with International Financial Management,

• The key components of the financial account are:

1. Direct foreign investment

For use with International Financial Management,

A purchase of Heineken (Netherlands) stock by a U.S. investor is classified as portfolio investment

5. Errors and omissions

• It includes the value of intellectual property rights (patents, trademarks,

• It also includes capital transfers such as:

For use with International Financial Management,

Type I: Current account in surplus, financial account in deficit

Type II: Current account in deficit, financial account in surplus

Type III: Current account and financial account in balance.

For use with International Financial Management,

• An alternative, less appealing scenario, is that of a developing country that has a

For use with International Financial Management,

UK importer purchases radios form Singapore Supply of British Pounds Decrease

For use with International Financial Management,

Home currency supplied to locals

For use with International Financial Management,

Exports cheaper for foreign Exports more expensive for

For use with International Financial Management,

Notes based on column numbers:

For use with International Financial Management,

For use with International Financial Management,

For use with International Financial Management,

For use with International Financial Management,

For use with International Financial Management,

For use with International Financial Management,

o the high levels of trade with Asia

For use with International Financial Management,

• North American Free Trade Agreement (NAFTA) 1993:

For use with International Financial Management,

• Single European Act 1987 and the European Union 1993:

• Inception of the Euro (1999):

For use with International Financial Management,

It is unfair if firms based in one country:

For use with International Financial Management,

o The use of trade policies for political reasons.

For use with International Financial Management,

• Impact of National Income

• Impact of Exchange Rates

For use with International Financial Management,

For use with International Financial Management,