weighs when determining whether to us FDI or licensing. Chapter 10 2. The implic
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weighs when determining whether to us FDI or licensing. Chapter 10 2. The implications of the Balance of Payments: What does a current account surplus tell us about a country? Be sure to discuss its implications on the a. flow of financial capital, the amount of investment (I), the International Investment Position, and external debt. What does a current account deficit tell us about a country? Be sure to discuss its implications on the flow of financial capital, the amount of investment (I), the International Investment Position, and external debt. What are the pros and cons of a current account surplus? Should a large country like United States worry about its persistent current account deficit and how long can it last? Discuss. Should a relatively poor country such as Mexico worry about its persistent current account deficir? Why or why not? b. c. d. e.Explanation / Answer
2.a) Ans: Current account surplus takes place when the value of goods and services it exports exceeds it's the value of good and services it imports. It means now we have more foreign currency than before. A country with a current surplus will have surplus foreign exchange it can use to invest in other countries. Surplus will help to repay the external debt also. With large current account surplus i .e inflow of foreign currency, country can purchase assets around the world.
B) current account deficit happens when the value of goods and services imports exceeds the value of goods and services it exports. This deficit can be corrected with the help of inflow of capital. It may lead to a depreciation oin the country. When imports demand increases, a huge amount of domestic money is going outside the country, thus it implies outflow of capital. It also increases the external debt to repay the old loan. Because of reduction in the foreign exchange a country will take more debt from outside.
C) pros and cons are already discussed and same as in above stated ans no a).
d) in practical matter , because of deficit in the BOP , the US net international position cannot become ever more negative as a percentage of GDP. In fact , economists suggest that it's likely that today's current account deficit will need to be trimmed or reversed over the long rum.
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