MGCR 382 Lecture Notes - Lecture 9: Impossible Trinity, Developing Country, Concours Complet International

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Lecture 9 - october 3rd, 2016 (fundamentals of multinational finance textbook, chapter 3) Portfolio investment: net balance of capital that flows into and out of a country but doesn"t reach the 10% ownership threshold of direct investment (eg. purchases of debt securities, bonds) Us bop : negative current account balance - they import more than they export, positive financial account balance - a lot of investment (a lot of capital is coming into us because they"re selling financial assets) Exchange rates : current account balance + capital account balance + financial account balance + reserve balance = Interest rates : low interest rates compared to other countries stimulate an outflow of capital seeking higher interest rates in other country currencies. Trade & devaluation : countries intentionally devalue their currency to make exports more price-competitive in world markets, considered self-destructive though because they make imports more expensive.

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