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
International Economics
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
Trade Bloc: Boosting Economies or Building Walls? Types, Pros, Cons
What's it? A trade bloc is a group of countries joined together through a trade agreement to achieve economic integration. This means they work together to reduce barriers between their economies, fostering a more interconnected system. This can
Spot Exchange Rate: Meaning, Affecting Factors, and How It Works
The spot exchange rate, also known simply as the spot rate, is the current price at which one currency can be traded for another for immediate delivery. This rate is crucial for anyone involved in international business, finance, or simply traveling
Trade Balance: Understanding the Flow of Goods and Currency + Formula, Impacts, Determinants
What's it: Trade balance is the difference between the country's export value and its import over a certain period. When exports' value exceeds imports, the country runs a positive trade balance (trade surplus). Meanwhile, if the value of
Regional Trade Agreement: Weighing the Impact – Types, Pros, and Cons
A regional trade agreement (RTA) is a pact between several countries in a specific geographic region. These agreements aim to break down trade barriers and foster deeper economic ties between member countries. By creating a more integrated economic
Capital Flow Control: Balancing Stability vs. Growth (Pros, Cons & Examples)
What's it? Capital flow control, often shortened to capital control, is a tool employed by governments and central banks to manage the movement of money across their borders. This strategy aims to influence the flow of capital, which encompasses
Trade Surplus: Impact on Growth & Currency + Pros, Cons
What's it: A trade surplus is when the value of a country's exports exceeds its imports. In other words, the country reports a positive trade balance. Since international trade involves two different currencies for payment, a surplus also affects the
Free Trade Area: Expanding Markets, Raising Concerns + Examples, Pros, Cons
A free trade area (FTA) is a pact between several countries in a specific region aimed at boosting trade and economic ties. Within an FTA, member countries agree to eliminate barriers to trade in goods amongst themselves. This can involve removing