What's it: Perfect capital mobility describes a hypothetical scenario where capital, such as money and investments, can move freely across borders without restrictions. In this ideal world, there are no barriers to entry or exit for capital flows.
International economics
Real Exchange Rate: Understand Currency Values & Trade Impacts (Formula, Calculation, Determinants)
What's it: The real exchange rate is the price of one currency against another currency adjusted for differences in the price levels of domestic and foreign prices. The aggregate price level measure is inflation, which shows you the currency's
Financial Account: Understanding Investment Flows in the Balance of Payments (Components)
Financial accounts act as a vital compass for understanding a country's investment activity on the global stage. They're a key component of the balance of payments (BoP), meticulously tracking the flow of investments between a country and the rest of
Trade Sanctions: A Tool for Change (Reasons, Effectiveness, Types, Impact, Pros, Cons)
What's it? Trade sanctions are formal penalties for a country to stop or reduce the purchase or sale of goods. The sanctioner may be a country with a strong economy, such as the United States, or several countries together or through an international
Eurozone: Currency Union, Economy & Impact (Benefits, Drawbacks, How It Works)
What's it: The Eurozone is an area of the European Union (EU) that adopts the Euro as its official currency. Of the 28 EU members, nineteen of them adopted the Euro as their currency, namely France, Germany, Austria, Belgium, Cyprus, Estonia,
Common Market: Freedom & Growth (Trade, Labor, Investment) + Examples, Pros, Cons
What's it? A common market is economic integration in which each member country applies uniform external tariffs and eliminates trade barriers for goods, services, and factors of production between them. It is a more advanced economic integration
Non-Tariff Barriers: Hidden Hurdles in Global Trade – Types, Reasons, Pros, Cons
What's it: Non-tariff barrier is an obstacle to restricting international trade through non-tax or duty instruments. Together with tariff barriers, they form trade barriers. Non-tariff barriers have an impact on the flow of goods into and out
Foreign Investment: Boosting Growth & Risks (Types: Direct vs. Portfolio + Pros, Cons)
What's it? Foreign investment is an investment by foreigners in the domestic economy expecting some benefit in the future. The two main categories are foreign direct investment and foreign portfolio investment. Direct investment involves control
Capital Flow Restriction: Safeguard or Stranglehold? Impact on Investments & Economy – Types, Pros, Cons
What's it? Capital flow restriction is controls that limit the ability of certain parties to invest or transfer their capital. Although this generally applies to foreign investment, the government can also restrict citizens from investing
Closed Economy vs. Open Economy: Trade-Offs & Global Growth
What's it? A closed economy is one without transactions with other countries. Its growth relies on household consumption, business investment, and government spending. It is impossible to find countries that adopt a closed economy. Almost all
Brexit Explained: Impact on Economy, Trade & Investment
What's it: Brexit, short for "British Exit," marks the United Kingdom's historic decision to unwind its deep economic integration with the European Union. Triggered by a closely contested 2016 referendum, where a narrow 51.9% majority voted to
Purchasing Power Parity Explained: Unveiling True Costs (Calculation, Pros, Cons)
What's it? Purchasing power parity (PPP) is an economic concept for equalizing the price of a set of identical items across different locations. In other words, these goods should be priced at the same level in various countries. The concept works
J-Curve: Devaluation’s Impact on Trade + Its Application in the Private Equity
J-Curve throws a curveball at our intuition. It's a graph shaped like the letter "J" that depicts a surprising trend: sometimes, things might get worse before they get better. This concept applies to two key areas of finance: international trade and
Currency Appreciation: Causes, Impact on Trade, Exports, Imports & More
What's it: Currency appreciation is when the exchange rate of one currency against another currency increases. One unit of currency can buy more of another currency. Appreciation makes foreign products cheaper for domestic buyers, thus
Understanding Currency: History, Types, Exchange & Global Impact
What's it: Currency refers to the money accepted and used as legal tender in a country. It includes banknotes and coins you use daily. The central bank or authority acts as the sole supplier and monitors its circulation in the
Foreign Portfolio Investment: Diversify Globally & Earn Returns (Types, Pros and Cons)
What's it: Foreign portfolio investment refers to short-term investment in financial instruments (such as stocks and bonds) in another country. For purchases on the stock market, this investment does not give the investor direct control and
Comparative Advantage Explained: Assumptions, Examples, Criticisms
What's it: Comparative advantage is a favorable position arising from producing goods and services at a lower opportunity cost. This concept is important in explaining international trade and specialization in production. That answers why countries
International Fisher Effect: Predicting Currency Movements (Formula, Criticisms)
What's it? The International Fisher Effect shows that changes in the exchange rates of two currencies correlate with the difference in nominal interest rates between the two countries. The term is named after its inventor, Irving Fisher, an American
Capital Outflow: Risks & Solutions (Factors, Impact on Exchange Rates)
What's it: Capital outflow refers to the going-out capital from a country. If a massive outflow of capital occurs, we call it a capital flight. Several factors trigger capital outflows, which are generally attributed to a combination of
Triangular Arbitrage: Exploit Currency Inconsistencies (Risk-Free Profits?)
What's it: Triangular arbitrage is the simultaneous buying and selling of three different currencies and attempts to exploit inconsistencies between their exchange rates. Profits can arise when the cross rates of the three currencies do not really
Terms of Trade: Understanding a Country’s Trading Power and & Its Impact
Terms of trade (TOT) are a crucial concept in international trade, reflecting a country's relative trading position. They essentially measure how much a country can import with its exports. By understanding it and the factors that influence it, you