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Financial Markets and International Capital Flows

Financial Markets and International Capital Flows. Chapter 11. Chapter 11 Learning Objectives. You should be able to:. Identify the features of bonds and stocks. Define capital inflows and capital outflows. Relate the trade balance to capital inflows and outflows.

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Financial Markets and International Capital Flows

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  1. Financial Markets and International Capital Flows Chapter 11

  2. Chapter 11 Learning Objectives. You should be able to: • Identify the features of bonds and stocks. • Define capital inflows and capital outflows. • Relate the trade balance to capital inflows and outflows. • Relate national saving rates to international capital flows.

  3. Coupon Bond Most bonds with maturities greater than a year are of this form. Coupon bonds issued by • Federal government (Treasurys) • State and local governments (munis) • Corporations (corporates)

  4. Stocks • Represent shares of ownership. • Quarterly dividends. • Price reflects expected future profitability.

  5. International Capital Flows • Capital inflows: foreign investors buying domestic assets • Capital outflows: domestic investors buying foreign assets.

  6. Balance of Payments NX + KI = 0 → KI = -NX

  7. Saving & Investment in International Economy Y = C + I + G+ NX Y – C – G– NX = I -NX = KI Y – C – G = S → S + KI = I

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