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Chapter 2
International Flow of Funds
Lecture Outline
Balance of Payments
Current Account
Financial Account
Capital Account
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
Cost of Labor
Inflation
National Income
Credit Conditions
Government Policies
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
International Monetary Fund
World Bank
World Trade Organizations
International Finance Corporation
Internatiaonal Development Association
Bank for International Settlements
OECD
Regional Development Agencies
Chapter Theme
This chapter provides an overview of the international environment surrounding MNCs. The chapter is
macro-oriented in that it discusses international payments and the flow of funds. This macro discussion is
useful information for an MNC since the MNC can be affected by changes in a country’s flow of funds.
© 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.
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?
© 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.
