\"Determinants of Trade Flows and Financing International Trade\" Please respond
ID: 2759789 • Letter: #
Question
"Determinants of Trade Flows and Financing International Trade" Please respond to the following:
Analyze the major effects that microeconomic and macroeconomic factors could have on the international flow of funds between countries and the primary manner in which such factors could affect a country’s balance of payments and its currency. Provide one (1) example of such effects on the U.S.
Examine the advantages for an American Multinational Corporation (MNC) that is able to source funds globally. Imagine that you are the CEO of a Fortune 500 company who is in need of capital in order to expand from the U.S. into Mexico. Determine the source of funding that you would choose and the currency in which the loan would be denominated. Provide a rationale for your response.
Explanation / Answer
There are various reasons where microeconomic and macroeconomic factors affect international fund flows between countries, and this affects shown on currency and balance of payments.
Low correlation between US market and Mexican market, reduces risk of the loan and arbitrage between international loans and diversified portfolio can keep uncompromised expected return.
But these methods don’t increase expected return for the American investor because of currency risk. US currency is stronger than the Mexican currency and it will reduce returns of the American investor in few dollars.
US economy is a global economy having all type of industrial base, so for US investor it is difficult to find new industry for investment and portfolio diversification. But Mexican economy is not so large and not all industries exist in the country so Mexican investor can get new industries in overseas market for the investment.
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