Internation trade, investment, and finance

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Government Policies toward the Foreign Exchange Market

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Presentation transcript:

Internation trade, investment, and finance Jan.28.2016

Which Western companies are taking a hit in Russia?

China became the world’s top destination for foreign direct investment in 2014.

China Trumps U.S. for Foreign Investment

Top destinations for foreign direct investment in 2014 SOURCE: UNCTAD China $128bn Hong Kong $111bn US $86bn Singapore $81bn Brazil $62bn UK $61bn Canada $53bn Australia $49bn Netherlands $42bn Luxembourg $36bn

Capital Inflows Become Outflows in China, WSJ Analysis Shows

China Trumps U.S. for Foreign Investment

Why the Chinese Are Snapping Up Real Estate in the U.S.

WHY?

Where is the good place to go?

How to move the money out?

Government Policies toward the Foreign Exchange Market

Government Policies Toward the Foreign Exchange Market Two Aspects · Policy toward the level and variability of the (nominal spot) exchange rate. In simple terms, the choice between a floating exchange rate and a fixed exchange rate. · Restrictions (if any) on the use of the foreign exchange market. These restrictions are generally called exchange controls.

Decisions for a Government That Has a Fixed Exchange Rate What to peg to? · Gold · U.S. dollar · Other foreign currency Basket of foreign currencies

Decisions for a Government That Has a Fixed Exchange Rate When to change the fixed rate? · Never (not credible) · Seldom (adjustable peg) · Often (crawling peg)

Decisions for a Government That Has a Fixed Exchange Rate How to defend the fixed rate? · Intervention in the FX market · Exchange control · Alter domestic interest rates Macroeconomic adjustment

Figure 19.1

Figure 19.3