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Chapter 23: Q. 36 (page 577)

Is it better for your country to be an international lender or borrower?

Short Answer

Expert verified

It is better for your country to be an international lender.

Step by step solution

01

Step 1. International capital movement

The movement or of financial assets from one country to some other both for the adjustment of BOP disequilibrium or for increasing the production frontier in a country denotes international capital flow or movement.

02

Step 2. Explanation

It is better for a country to be a lender because a lender would have a trade surplus. Because the trade balance and the international flow of financial capital are so closely led, trade surpluses result in inflows of the domestic currency. The inflow of domestic currency from surplus product exports, which is used by the country for lending purposes. The lending country can also receive interest payments on the amount lent.

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Most popular questions from this chapter

State whether each of the following events involves a financial flow to the U.S. economy or away from the U.S. economy:

  1. Export sales to Germany
  2. Returns paid on past U.S. financial investments in Brazil
  3. Foreign aid from the U.S. government to Egypt
  4. Imported oil from the Russian Federation
  5. Japanese investors buying U.S. real estate

If imports exceed exports, is it a trade deficit or a

trade surplus? What about if exports exceed imports?

If countries reduced trade barriers, would the international flows of money increase?

Why does the trade balance and the current account balance track so closely together over time?

If a country is a big exporter, is it more exposed to global financial crises?
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