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. Relate national saving rates to international capital flows.

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)

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

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

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

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