...Buffett is betting that American trade deficit will not be restored and the country’s practice of borrowing from abroad to pay for the current goods and services will not stop. The USA borrows from abroad to finance its trade deficit, on top of that the USA government spends more money than it takes from taxes. The budget deficit increases the gap between country’s national savings and national income and and also widens the deficit in the current account by necessitating the country to borrow more money from other foreign countries. This widened current deficit puts strain on the USA currency in the financial markets. If Americans are going to buy inexpensive imported goods and the USA government has a budget shortage, I think Warren Buffett is making a fantastic move by betting against the dollar. Between 2002 and 2007 the dollar has fallen by 40 percent. 2. Why has the United States developed such large current account deficits? I and a lot of people believe the United States has developed such a large current account deficit is the trade deficit. The USA is importing more goods and services more than it exports so it has held trade deficit since the late 1960s and this trade deficit has been mushrooming at an unbelievable rate since 1997. The increasing oil prices in the last few years has helped increased the current account deficit too. Another reason for the current account deficit could be attributed to the budget deficit. In almost every year the government cuts...
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...Buffett is betting that American trade deficit will not be restored and the country’s practice of borrowing from abroad to pay for the current goods and services will not stop. The USA borrows from abroad to finance its trade deficit, on top of that the USA government spends more money than it takes from taxes. The budget deficit increases the gap between country’s national savings and national income and and also widens the deficit in the current account by necessitating the country to borrow more money from other foreign countries. This widened current deficit puts strain on the USA currency in the financial markets. If Americans are going to buy inexpensive imported goods and the USA government has a budget shortage, I think Warren Buffett is making a fantastic move by betting against the dollar. Between 2002 and 2007 the dollar has fallen by 40 percent. 2. Why has the United States developed such large current account deficits? I and a lot of people believe the United States has developed such a large current account deficit is the trade deficit. The USA is importing more goods and services more than it exports so it has held trade deficit since the late 1960s and this trade deficit has been mushrooming at an unbelievable rate since 1997. The increasing oil prices in the last few years has helped increased the current account deficit too. Another reason for the current account deficit could be attributed to the budget deficit. In almost every year the government cuts...
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...economic crisis in its history, which is called "The Peso crisis" or "Tequila Crisis" and is considered one of the first ones that had global effects. After only three weeks in charge, the newly elected President Ernesto Zedillo Ponce de León was forced to lift the upper band of the exchange rate by 15%, devaluating de facto the Mexican currency. In fact, the Central Bank of Mexico had insufficient international reserves to keep the fixed exchange rate with the US dollar. This triggered panic among Mexicans, who started buying dollars because they were fearing that further and more serious devaluations would occur. This contributed to exacerbate the situation even more. The crisis was very harsh, but thanks to a US$50b rescue package from USA, the IMF, the Bank for International Settlements and private commercial banks, Mexico was able to roll over its short term dollar denominated debt and did not default on its short term securities. As it results from the following data, Mexico managed to recover very quickly: * The GDP decreased by 5.8% in 1995, but in 1996 and in 1997 it grew by 5.9% and 7.0% respectively * Household final consumption expenditure contracted by 11.5% in 1995, but in 1997 it went back again to 1994 level * Foreign direct investments decreased by 13% in 1995 and by 4% in 1996, but they grew by 40% in 1997 to a level 16% higher than in 1994 * Unemployment rate grew by almost 3 percentage points, but in 1997 it was lower than in 1994 * Inflation...
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...beside the Euro and the USD (Yuan is Overvalued, not Undervalued: report, 2010). Other economists argue that the RMB is undervalued against the USD, and this would be the major focus of this research paper. The RMB’s depreciation allows China to unfairly gain trade advantages over other trading nations. Economists views varies on the level at which the RMB’s undervaluation affect other Chinese trading partners. But most economists agree that currency flexibility would be of great help to decrease global imbalances (China Currency Overview, 2010). This research paper will discuss the different component of the Chinese protectionism policy for its exchange rate, and its effects on other nations such as the USA. The focus will be in showing the advantages and disadvantage for the USA and China in the trading balance. Historical background of the RMB: Preceding year 1994, China had a dual exchange rate system. The dual exchange rate system was practiced in two different ways, which are the official fixed exchange rate system and the moderately market-based exchange rate systems (China Currency Overview, 2010). The government used the fixed exchange rate system, but the exporters and the importers used the market-based exchange rate (China...
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...Monetary Fund’s definition of oil exporters—those countries that currently derive the bulk of their export revenues from sales of fuel. Norway has been added because last year the country derived roughly 53 percent of export revenues from oil. Origin of petrodollar phenomenon: The Organization of the Petroleum Exporting Countries (OPEC) was founded in Baghdad, Iraq, with the signing of an agreement in September 1960 by five countries namely Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. They were to become the Founder Members of the Organization. This cartel controlled the export of oil to majority of the countries of the world. In 1971, USA printed & spent far more paper money than it could cover by gold. By 1973, the French demanded redemption of its paper dollar holdings in gold. However USA rejected it since it did not have enough gold reserves to back up the...
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...The graph for China is continuously positive therefore it is running a persistent surplus. The USA is running a persistent deficit as shown by the fact that the graph is continuously negative. 2. High levels of consumption and investment. A change in comparative advantage causing cheaper goods/services imported rather than domestically produced. Overvalued currency, causing consumers to buy cheaper imported goods. Structural weakness in the economy so loss of market share. 3. In the case of China, surplus is occurring as national output exceeds domestic demand. The Chinese production greatly outstrips Chinese demand for goods and services and so there is a massive trade surplus. 4. Retrieving a government bond is a way for the firm or government to borrow money at certain interest rates. In return for buying the bond and investor gets a certain interest rate for the duration of the bond. 5. China is making use of its vast factor resources and low cost labour. Chinese producers have been able to undercut producers in the high income economies of the west and with much improved quality competitiveness have represented good value for money. Its willingness to suppress the ER in order to gain cost advantage enhances its competitiveness. 6. The US deficit reflects the inability of domestic users to compete with Chinese rivals and because of excess consumption. USA domestic demand exceeds national output, so the country is buying more from abroad than it is selling...
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...National Debt in the U.S.A Name Professor Institution Course Date ABSTRACT The fast increase in the National government debt is becoming of interest to decision makers and the citizens of the USA. This paper examines the implications of the increasing debt financing to the economy of the United States. The proportion of the U.S.A National debt is rising in comparison to the National GDP. In the past decade, the USA Treasury has been borrowing trillions of dollars from both foreign investors and its citizens to help fund wars save the financial system as well as promote the economic development of the country. Does the increasing debt have any impact on economy? This paper will explain that an appropriate analysis on the United States debt is important to cope up with this worrying trend. INTRODUCTION In general, debt can be viewed as something specific in nature which the creditor and debtor can’t control at will. The United States National debt has been increasing at an average rate of about $1.64 billion each day since September, 2004 (Lucas, 2005). Manuel estimates that every human being in the United States currently owes $56,651 for their share of the U.S.A public debt. As at 27th October 2013, the total National debt of the United States was $ 17,211,829,040,346.01 (Manuel, 2013). This is an indication of how the national debt in the United States of America has been rising in the recent years. Recently...
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...areas such as production and purchasing are obvious, economies of scale can also impact areas like finance. For example, the largest companies often have a lower cost of capital than small firms because they can borrow at lower interest rates. As a result, economies of scale are often cited as a major rationale when two companies announce a merger or takeover. However, there is a finite upper limit to how large an organization can grow to achieve economies of scale. After reaching a certain size, it becomes increasingly expensive to manage a gigantic organization for a number of reasons, including its complexity, bureaucratic nature and operating inefficiencies. This undesirable phenomenon is referred to as "diseconomies of scale". Deficit Financing When...
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...Maria Tovar Trade Surplus and Trade Deficit China overtakes USA as worlds trading partner China´s Trade Surplus Vs. USA´s Trade Deficit Countries that have open economies are those who carry out economic activities with other countries and trade goods and services. Countries can export, which means selling domestic goods and services to another country or they can import, which means buying goods and services from another country. An economic surplus makes reference to having a positive balance of trade; when a country´s exports exceed its imports. On the other hand, a trade deficit is when a country´s imports exceed its exports and has a negative commercial balance. As the video: “China overtakes USA as a world´s trading partner,” suggests, China currently has a trade surplus. Between 2000-2008 China´s imports have grown 403% whilst its exports have grown 474%. China´s exports are currently higher than its exports due to its economic strategy, which will be explained below. The video explains why China has overtaken the US as world´s trading partner, and thus why China has a trade surplus and the US a trade deficit. American and many other companies are now producing and assembling their products in China due to the low manufacturing costs in this country. It is more profitable for American companies to produce and assemble their products in China not only for the low labor costs, but also for the low transport costs. Even though this harms the US´s economy, companies...
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...regime. 3) A small economy country whose GDP is heavily dependent on trade with Spain could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate. a) b) c) d) pegged exchange rate with the United States pegged exchange rate with the Euro independent floating managed float 4) The ________ includes all international economic transactions with income or payment flows occurring within the year. a) Capital account b) Financial account c) Current account d) IMF account 5) Which of the following groups of countries have replaced their individual currencies with the Euro? a) b) c) d) France, Germany, Italy, United Kingdom, Austria France, Germany, Belgium, United Kingdom, Switzerland Norway, Estonia, Finland, Luxembourg, France Cyprus, Estonia, Finland, France, Netherlands 6) Based on the following information, calculate Brazil's Current Account Balance (Numbers in millions of US dollars) Goods...
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...1) INTRODUCTION India’s development strategy was based on protection, self-reliance & import substitution before the liberalization policy was accepted & initiated. Foreign capital flows were not looked upon favorably & therefore not encouraged. If there is a deficit in the current account it was financed mainly through deft flows & official development assistance. The policy followed was one which discouraged foreign investment. However, the adverse balance of payment & the economic crisis faced by India forced India to adopt economic reforms. Government restrictions can often result in a currency with a low convertibility. For example, a government with low reserves of hard foreign currency often restrict currency convertibility because the government would not be in a position to intervene in the foreign exchange market (i.e. revalue, devalue) to support their own currency if and when necessary. Convertibility is the quality that allows money or other financial instruments to be converted into other liquid stores of value. Convertibility is an important factor in international trade, where instruments valued in different currencies must be exchanged.1 Currency Convertibility means the ability to freely exchange the currency of one Member State into the currency of another Member State. For example, a Barbadian should be able to easily purchase goods in a store in Port of Spain with his Barbadian dollars and receive his change in Trinidad and Tobago...
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...all that transaction known as payment of balance, the benefit of having such a record is to know how much money is spent on import and export in goods and services. BOP consist in: 1- Capital account: monitoring of the short term and long term transaction among the UK and the whole world in (saving and investment) with a surplus of 100 million in 2012 and it contains: * Direct investment: when an invest take a place outside the country (abroad) the record of transfer of ownership it’s called a direct investment with amount of 48.3 billion in 2012. * Portfolio investment: it’s all the investing in shares and bonds, and all the interest a dividends received from it concern to be in/out flow to the country, which it increased to 118.8 in 2012. * Other investment: includes net government borrowing from foreigners, and short-term. * Official reserve: the government used of gold and currencies held by the bank 2- Current account: keeping a record of all transaction in goods and services in and out of UK called current account which it’s was a deficit with over 59.8 billion in 2012. Which includes: * Trade in goods: in the oil section for in 2012 UK has been a net exporter for it. However, UK always import goods then it export which made it a trade deficit of 12.56 (-) billion in 2012. * Trade in services: it’s what the country provide for their people such as insurance and finance, with an 8.709 billion in the financial division which makes it...
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...The Economic Environment Facing Global Business KEY MACROECONOMIC INDICATORS • Economic Growth • Inflation • Surpluses & Deficit KEY MACROECONOMIC INDICATORS : ECONOMIC GROWTH • GDP and GNI (or GNP) – High or Low – total amount of goods and services produced in a year within the domestic territory) or GNI (GDP + net income) – Per capita GNI (total GNI divided by total population) – PPP GNI (unmber of units of a country’s currency required to buy the same goods and services in the domestic market that $1 will buy in USA KEY MACROECONOMIC INDICATORS : INFLATION • Increase in prices • Inflation rate percentage increase in the change in prices from one period to another, usually a year • Demand more than supply • Inflation effects – interest rates – exchange rates – cost of living and – General confidence in a country’s political and economic system KEY MACROECONOMIC INDICATORS : INFLATION • Inflation and Interest rates • High inflation – High interest rates KEY MACROECONOMIC INDICATORS : INFLATION • Inflation and Exchange Rate • Higher inflation – devaluation • Case 1 • UK exporter – US distributor • Cost 100 pounds Exchange rate $1.59 / GBP • Cost to US distributor $159 • Case 2 – High Inflation – exchange rate constant – exports will be costly • Cost 110 pounds Exchange rate $1.59 / GBP • Cost to US distributor $174.90 – High Inflation – currency devaluation – exports will be competitive • Cost 110 pounds Exchange rate $1.47 / GBP • Cost...
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... G REECE White Paper - Impact of Greece Crisis Global Research Limited Introduction Historically, financial crisis tend to lead to sharp economic downturns, low government revenues, widening government deficits, high levels of debt, pushing many governments into defaults. This is called SOVEREGIN DEBT CRISIS. GREECE is currently facing this, it accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded and there was liquidity crunch in world economy, Greece may no longer be able to rol over its maturing debt obligations. Build – Up To The Current Crisis Between 2001-2008, Greece reported budget deficits averaged 5% per year, compared to Eurozone average of 2%. Also, its current account deficits averaged to 9% per year compared to Eurozone average of 1% Greece funded these twin deficits by borrowing in international capital markets, leaving it with chronically high external debt (115% of GDP in 2009) Some of the facts which can be depicted from following charts : www.capitalvia.com 2 White Paper - Impact of Greece Crisis G lobal Research Limited How Country Debts And Budget Deficits Compare? Projected budget deficit for 2009 Budget deficit figs as % of GDP Debt as % of GDP 68.6% UK 13% 112.6% Greece 12.5% 54.3% Spain 11.25% 65.8% Ireland 10.75% 114.6% Italy 5.3% 74.3% Germany 3.5% Source: European Commission /...
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...IMPACT of GREECE White Paper - Impact of Greece Crisis Global Research Limited Introduction Historically, financial crisis tend to lead to sharp economic downturns, low government revenues, widening government deficits, high levels of debt, pushing many governments into defaults. This is called SOVEREGIN DEBT CRISIS. GREECE is currently facing this, it accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded and there was liquidity crunch in world economy, Greece may no longer be able to rol over its maturing debt obligations. Build – Up To The Current Crisis Between 2001-2008, Greece reported budget deficits averaged 5% per year, compared to Eurozone average of 2%. Also, its current account deficits averaged to 9% per year compared to Eurozone average of 1% Greece funded these twin deficits by borrowing in international capital markets, leaving it with chronically high external debt (115% of GDP in 2009) Some of the facts which can be depicted from following charts : www.capitalvia.com 2 White Paper - Impact of Greece Crisis Global Research Limited How Country Debts And Budget Deficits Compare? Projected budget deficit for 2009 Budget deficit figs as % of GDP Debt as % of GDP UK 13% Greece 12.5% Spain 11.25% Ireland 54.3% 68.6% 112.6% 65.8% 10.75% 114.6% 5.3% Italy Germany 3.5% 74.3% Source: European Commission / Economic forecast autumn...
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