Chapter 29: International Finance
1. Note that since our imports provide foreigners the means (dollars) by which they can buy our exports,
2. Especially if you have a large number of foreign students in class, it is often interesting to them to point
3. To reinforce the meaning of the statistical discrepancy here, I like to propose calling it the international
official fudge factor (OFF) in class.
4. It is probably worth noting in class that the substantial balance of payments statistical discrepancy
implies that official balance of payments numbers be taken with a grain of salt.
5. Notice that since the U.S. is a net importer of goods and a net exporter of services, those who want to
6. A relatively intuitive way to reinforce student understanding of the balance of payments current and
7. Note that the demand for foreign currency is a derived demand in just the same way that the demand
for inputs is derived from the value of the outputs they produce.
8. To reinforce the exchange rate-net exports connection, it might be worth bringing a student volunteer
to the blackboard and lead him or her through a numerical example of how export prices of American
9. An interesting sidelight to exchange rates is that since foreign currency dealers won t exchange coins,
10. One possible interesting application to students might be to ask what happens to dollar–peso
exchange rates, ceteris paribus, if a Mexican beer company buys $100 million worth of advertising in the
11. Note to students that international currency markets have become so extensive that even
governments are not able to offset currency market forces for long.
12. One useful way of thinking of the initial financial market effects of international trade is to think of
money piling up on the shore of whichever countries have trade surpluses.
13. An interesting illustration of exchange rate effects involves oil prices in the 1980s. In the early to
middle 1980s, oil prices in dollars (all oil sales are priced in dollars) resulting in a good supply shock in
14. You might want to discuss how exchange rates changes in the 1980s were caused in part by relative
15. Remind students that exchange rates always move in the wrong direction for someone. E.g.,
17. As an application of this material, ask students why producers in Thailand or Singapore might be very
concerned about whether China chooses to devalue its currency.
18. An analogy to the fixed versus flexible exchange rate comparison would be to ask students whether
they would prefer that what they buy at the market has prices that fluctuate often but by small amounts as
conditions change, or infrequently and unpredictably by large amounts. Which would they prefer for their
university tuition and fees?
19. Because of the introduction of the Euro, you might want to discuss some of the issues involved in