Economics: Theory and Practice, 10th Edition

CHAPTER 17

International Finance

CHAPTER OBJECTIVES

To define exchange rates and explain how they are determined.

To introduce foreign exchange markets, and to identify some factors that cause exchange rates to fluctuate.

To identify the major categories into which international financial transactions can be placed, and to understand their interrelationships.

To define balance of trade, and to review its performance over the past few decades.

To introduce the debt problem faced by some countries and issues in unifying monetary systems.

Chapter 16 focused primarily on the exporting and importing of goods and services. But many other types of international transactions are important to an economy: the buying and selling of foreign stocks, bonds, and other assets; foreign assistance; and private gifts to foreigners.

Most international transactions involve payment flows between countries, making it necessary to have a mechanism for determining the values of foreign currencies and for exchanging domestic money for foreign money. The value of an economy's currency in foreign exchange markets is especially important because it affects the prices of the country's exports, imports, and foreign investments. The value of the dollar in relation to the yen, euro, and other foreign currencies is so important to U.S. international transactions and to the economy that it is quoted daily in ...