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74 Cards in this Set
- Front
- Back
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Ad valorem tariff
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a fixed percentage tax on traded commodities
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specific tariff
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a fixed sum per traded unit of commodity
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compound tariff
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combination of ad valorem and specific tariff
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consumption, production, and trade effects
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what happens to these 3 when a tariff is imposed
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voluntary export restraint
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when the exporting nation voluntarily restricts its exports to a numerical limit
-to reduce likelihood of importing country imposing other trade barrier -same as quotas, but rent goes to the foreign producer |
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dumping
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when (1) the sales price in importing country is lower than in exporting country or (2) the sales price on importing country is lower than production costs
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persistent dumping
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continuous sale of commodity at higher price in domestic market than in international market
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predatory dumping
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temporary sale of commodity at below cost or at a lower price abroad than at home in order to drive out foreign producers, after which prices are raised to maximize profits
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sporadic dumping
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occasional sale of commodity at below cost or lower price abroad than domestically in order to unload an unforeseen urplus of a commodity without having to reduce domestic prices
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production cost subsidy
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i.e. tax rlief, zero interest loans
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Trade Promotion Authority (TPA)
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-president can negotiate agreements
-congress can only vote up/down without changes or modifications |
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Preferential trade arrangements
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-provides lower barriers on trade among participating nations than on trade with non-members
-i.e. British Commonwealth |
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Free Trade Area
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-removes all barriers to trade among members but each nation retains barriers against non-members
-i.e. NAFTA |
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Customs Union
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-no barriers among members and harmonizes trade policies towards rest of world
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Common Market
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-removes all barriers among members, harmonizes policies toward rest of world, allows free movement of labor and capital among members states
-i.e. EU as of 1993 |
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Economic Union
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-all in common market + unifies monetary, fiscal, and tax policies of members
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Benefits from Customs Unions
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-increased competition
-economies of scale production -stimulus to investment |
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Gravity Model
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Tij = A x Yi x Yj x 1/Dij
value of trade = A x size of country i x size of country j x 1/distance between i and j |
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Current Account
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-goods balance
-service balance -income receipts (earnings on investments) -unilateral transfers (foreign aid, pensions to citizens abroad, etc.) |
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Capital Account
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net unilateral transfer of assts (debt forgiveness, etc.)
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Financial Account
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-private assets
-foreign assets in U.S. -FDI -long-term and short-term portfolios |
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Portfolio
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purchase of a non-controlling share of business
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Long-term Portfolio
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assets with maturity of more than 1 year
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Short-term Portfolio
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assets with maturity of less than 1 year
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T-Note
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1-10 yrs.
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T-bill
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less than 1 year
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T-bond
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more than 10 years
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Official Reserve Assets
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central band transactions involving purchases of foreign assets (gold, SDRs, foreign currency denominated assets)
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official settlements balance
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net change in a country's official reserves (domestic-foreign)
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Flow Variable
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per unit of time (i.e. over a year, etc.)
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Stock Variable
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at a given point in time
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Financial Account Surplus
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you buy more foreign assets than they buy of yours
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exchange rate
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price of foreign currency in terms of the domestic currency
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effective exchange rate
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exchange index based on trade wights (captures overall picture of what's happening to the dollar)
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With a fixed exchange rate, if you run out of reserves and continue to face a BOP deficit you can...
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-devalue your currency
-let exchange rate float |
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P*
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foreign price
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P/E
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price in foreign currency
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EP*
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domestic price
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Net supply of forex
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(pbar/E)X - pbar*M = TB*
export spending in foreign currency terms - import spending in foreign currency terms = trade balance in foreign currency |
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Marshall-Lerner Condition
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effect of a devaluation on trade balance:
-a devaluation reduces the real quantity of imports -devaluation also increases real quantity of exports -any given quantity of exports earns less foreign exchange |
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J-Curve
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result of a currency devaluation to trade balance:
-negative valuation (exports bring in less foreign currency) -improvements in TB -Martshall-Lerner condition satisfied -usually takes 3-5 years to happen in full |
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National Savings (S)
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= Spvt + Sgov
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Privat Savings (Spvt)
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= private disposable income (Y + NFP + TR + INT - T) - consumption
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Government Savings (Sgov)
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= Net gov't income (T-TR-INT) - gov't purchases
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Current Account equation
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CA = S - I
or NX = S - I |
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Current Deficit figure
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7% of GDP
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Current debt figure
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23-24% of GDP
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If renminbi is revalued...
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-imports won't change because production would just move to other low cost regions
-only benefit might be that China would buy more American products now that they're relatively cheaper -no real big improvement in current account deficit |
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Euromarkets
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1950s--Americans set up accounts abroad in dollars (deposits denominated in currency other than that of the country)
-was a way to get around regulations |
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Market thickness, thinness
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thickness = highly liquid
thinness = less liquid |
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Petrodollars
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OPEC countires put lots of dollar surplusses into Euromarkets which were then lent out to developing countries
- when interest rates rose in the 1980s these countries couldn't pay them back, resulting huge financial crises |
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currency board system
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100% reserve backing
-stronger form of fixed exchange rate -i.e. Hong Kong |
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bid-ask spread
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cost of trading forex (very low, making it cheap to trade so a lot occurs)
-difference between bid-price and ask-price |
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bid-price
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price at which a bank wants to sell currency
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ask-price
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price at which a bank is willing to purchase currency
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vehicle currency
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currency used in financial market
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double coincidence of wants
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each party must have something that the other wants (innefficient)
-reason for vehicle currencies |
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disadvantage to dollar being a reserve currency
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fluctuations in demand abroad has a greater effect domestically
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advantage to dollar being a reserve currency
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in exchange for dollars, US gets goods and services...only cost is printing money
-seinorage |
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forward discount
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% per year by which the forward rate is below the spot rate
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forward premium
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% per year by which the forward rate is above the spot rate
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fd or fp
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= [(F-S)S] x 4 x 100
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forex futures
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forward currency contracts for standardized currency amounts and select dates
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forex options
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a right, but not an obligation, to buy (call option) or sell (put option) a standard amount of a traded currency on a stated date (European option) or anytime before a stated date (American option) at a stated price (strike price)
-there's an initial transaction cost, even if there's no transaction |
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ius
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fd + iuk
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Byrd ammendment
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encourages companies to file antidumping lawsuits by awarding the revenues collected from the resulting tariffs to the litigating companies
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Slow pace of Doha talks
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-National/coalition positions
-minesterial mandates -WTO mercantilist ethic |
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national/coalition positions at Doha
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-Countries not looking at what’s best overall—only immediate concerns
-The “blame game” |
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Minesterial mandates at Doha
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-Developing countries have understood the meaning of the talks to be simply developed country concessions (results in little talk of services, just agriculture, etc.)
-“special” and “sensitive” industries are allowed to be left out |
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WTO mercantilist ethic at doha
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-Political opposition to lowering barriers actually hurts the home country—trade not a zero sum game
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How to renew the TPA
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-Importance of Doha will need to be emphasized to Congress
-Must emphasize foreign policy cost of abandoning regional trade agreements -Bush must give concessions to democratic congress |
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Results of a failed Doha
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-Forgone welfare gains
-Slow weakening of the WTO—make trade disputes problematic, especially for smaller developing countries -Increased regionalism—new bilateral FTAs among developed countries (hurts developing world) -Increased protectionism -Adverse shocks in financial market |
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Saving in the USA
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-Saving estimates don’t include education, R&D, etc. that are like savings in today’s information-based economy
-Increases in relative price of houses also represent effective saving -U.S. companies save a lot!.....even if individuals don’t |
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Ways to reduce China's surplus without revaluing the renminbi
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-Work to build a functioning foreign exchange market
-Reduce some of its import tariffs -Relax controls on outward movement of capital |
