DIŞ TİCARET - Deneme Sınavı - 2

the worldwide economic recession of 2008 was induced by the financial crisis of 2007 (also known as subprime mortgage crisis) in the USA and it is generally accepted by the researchers that it is the deepest economic recession in the world after the Great Depression of 30s.

Pound Crisis in European Union member countries in 1993, Tequila Crisis in Mexico and other Latin American countries in 1994, Asian Tigers Crisis in East Asian countries in 1997, Panda Crisis in Russia and other emerging market economies in 1998.

Current Account: This account involves all credit and debit items arising from export and import transactions of all goods and services, income receipt, and payment transactions in the country. If we add up all items related to goods and services export and import, we obtain the trade balance which is an important component of current account. Therefore, the correct option is C.

Reserve Assets: As long as the credit usage from the International Monetary Fund (IMF) is zero, international reserve assets consists mainly of the changes in official reserves of the country. Therefore, the correct option is A.

Capital Account: This account fundamentally consists of unilateral transfers occurred in the country with the rest of the world. Since unilateral transfers express unrequited payments among nations, in this account, generally donations a country makes and receives are recorded. Since it usually has a small balance relative to current account, it is sometimes included in the current account balance instead of being considered as a separate account. Therefore, the correct option is D.

Financial Account: The net value of financial assets and similar claims that a country bought and sold (except the official international reserve changes) with the rest of the world states the private finance account balance in the balance of payments. The values recorded in the financial account are the principal values of the financial assets bought and sold; revenues obtained or paid to the holders of these types of assets are recorded in the capital account. Therefore, the correct option is B.

Statistical Discrepancy: This balancing item is also called as net errors and omissions in the balance of payments literature and it is the most skeptical (or more accurately the cause of polemic) item among the balance of payments entries. If the double sides of flows caused by the international transactions are accurately recorded, there will be no statistical discrepancy at all. Therefore, the correct option is E.

Funds used for investments made by a country’s own citizens in a foreign country are called as domestic capital while the funds used for foreign investments in a country are foreign capital. In the first case, there is a capital outflow from country to abroad while there is an inflow of capital from abroad to the country in the latter case. Therefore, the correct option is E.

Short term capital movements are capital flows based on debt instruments with a maturity less than one year. Frequently this type of capital flows is realized by using currency, demand deposits and treasury bills. Therefore, the correct option is C.

Where do above mentioned effects of the short term capital flows come from? These effects vary with some characteristics of the country to which short term capital flows move: exchange rate regime in the country, interest rate differential between the country and foreign countries, size of the balance of payments deficit. Since the size of these effects depends on the monetary policy followed in the country (the degree of sterilization), without technical details, we can conclude that short term capital flows affect the quantity of money, interest rate (therefore foreign exchange rate) and general price level in the country. Therefore, the correct option is C.

Foreign direct investments are the investments made by individuals or firms through buying a firm, providing the establishment capital for a new company or increasing the capital of an existing company in other countries. Such investments also involve transferring the technology, bringing the business knowledge and undertaking the investor to control over the company. Therefore, the correct option is E.

The recession of 2008 in the USA is partly a result of banking crisis which started in 2007 including banking firms and other financial institutions like insurance companies. Banking sector in an economy carries out the primary function by transferring funds from savers who want to spend less than their income to debtors who want to spend more than their income. Therefore, the correct option is D.

Current Account: This account involves all credit and debit items arising from export and import transactions of all goods and services, income receipt, and payment transactions in the country.

International portfolio investment: An indirect foreign investment consisting of purchasing or selling of an equity or a bond

The one hundred-year period before the First World War is generally known as the golden age of private investments. During this period, countries such as Britain, United States, Germany and France experienced a rapid industrialization process through large-scale foreign investments.

Direct investments, which account for more than half of the capital movements in the period 1983-1990, have been shifted to East Asian countries.

Government and Private Capital Movements: Government capital movements refer to capital movements arising from lending and borrowing transactions among governments. Transactions like lending to foreigners or borrowing from foreigners by private individuals and institutions in a country create private international capital movements. In some cases, capital transfer from one country to another can be guaranteed by the government or central bank of the borrowing country.

Portfolio investments are the purchase of securities such as bonds and stocks for financial purposes by foreign investors. Note that portfolio investments do not aim managerial control over the company whose securities are bought by the foreign investor; they only aim to obtain a financial return. Considering these definitions, foreign direct investments are generally carried out by multinational corporations while portfolio investments are realized by international investment funds.

If we prepare a list that compiles the importance of foreign direct investments, it should contain the followings: • In case of an economic turbulence in the receiving country, it is not easy for foreign direct investments to leave the country compared to portfolio investments. • Receiving country gets the possibility of investing over her domestic savings to sustain economic growthwithout increasing indebtedness. • Foreign direct investments create new business lines in the receiving country. • High technologies with direct investments promote the research and development activities in the receiving country so that she becomes a technology producing country instead of importing one. • Advanced production technology improves the quality of labor force overtime and this will help to increase wage and to reduce other production costs. • Foreign direct investments cause some important changes in the market structure of the receiving country through evolving competition culture. This will help to increase new types of products, to reduce product prices and, in the end, to increase consumer welfare overtime.

Although they have a variety of features, financial crises are often experienced as a banking crisis, a foreign exchange crisis, a debt crisis or a combination of these three.