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Chapter 2
International Flow of Funds
Lecture Outline
Balance of Payments
Current Account
Capital and Financial Accounts
Growth in International Trade
Events That Increased Trade Volume
Impact of Outsourcing on Trade
Trade Volume Among Countries
Trend in U.S.Balance of Trade
Factors Affecting International Trade Flows
Impact of Inflation
Impact of National Income
Impact of Government Policies
Impact of Exchange Rates
Interaction of Factors
International Capital Flows
Factors Affecting Direct Foreign Investment
Factors Affecting International Portfolio Investment
Impact of International Capital Flows
Agencies that Facilitate International Flows
Chapter Theme
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
This chapter provides an overview of the international environment surrounding MNCs. The chapter is
macro-oriented in that it discusses international payments on a country-by-country basis. This macro
discussion is useful information for an MNC since the MNC can be affected by changes in a country’s
current account and capital account positions.
Topics to Stimulate Class Discussion
1. Is a current account deficit something to worry about?
2. If a government wants to correct a current account deficit, why can’t it simply enforce restrictions on
imports?
3. Why don’t exchange rates always adjust to correct current account deficits?
POINT/COUNTER-POINT:
Should Trade Restrictions be Used to Influence Human Rights Issues?
POINT: Yes. Some countries do not protect human rights in the same manner as the U.S. At times, the
U.S. should threaten to restrict U.S. imports from or investment in a country if it does not correct human
rights violations. The U.S. should use its large international trade and investment as leverage to ensure
that human rights violations do not occur. Other countries with a history of human rights violations are
more likely to honor human rights if their economic conditions are threatened.
COUNTER-POINT: No. International trade and human rights are two separate issues. International trade
should not be used as the weapon to enforce human rights. Firms engaged in international trade should
not be penalized by the human rights violations of a government. If the U.S. imposes trade restrictions to
enforce human rights, the country will retaliate. Thus, the U.S. firms that export to that foreign country
will be adversely affected. By imposing trade sanctions, the U.S. government is indirectly penalizing the
MNCs that are attempting to conduct business in specific foreign countries. Trade sanctions cannot solve
every difference in the beliefs or morals between the more developed countries and the developing
countries. By restricting trade, the U.S. will slow down the economic progress of developing countries.
WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support?
Offer your own opinion on this issue.
ANSWER: There is no perfect solution, but the tradeoff should be recognized. When trade is used as the
means to correct human rights problems, those firms that initiated their business in other countries could
suffer major losses. These firms may argue that they are mistreated by such restrictions, and that the
country of concern will not necessarily improve its human rights record even with the restrictions. Yet, if
the U.S. ignores the human rights issue, it will be criticized for being too capitalistic, and unwilling to
help solve social problems in the world.
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
