The function of _______ is to channel one country's domestic savings into investments abroad?
Show answer Hide answer
Answer: D. capital flows
Explanation
International capital flows channel domestic savings from one country into investments abroad. Surplus funds in capital-abundant nations are transferred globally to finance productive projects in developing regions. Financial intermediaries and capital markets facilitate the movement of savings across international borders efficiently. Capital flows include foreign direct investment, portfolio investment, and international loans between financial institutions. National savings not invested domestically flow outward to earn higher returns in foreign financial markets. The balance of payments capital and financial accounts record these cross-border movements of monetary funds.
Developing nations rely heavily on foreign capital flows to finance infrastructure and accelerate domestic economic growth. Global portfolio diversification allows investors to allocate domestic savings into resilient international stock markets. Sudden reversals of capital flows can trigger severe financial crises in emerging market economies worldwide. Option A involves physical goods trade rather than the direct transfer of savings for investment purposes. Option B covers intangible services like tourism and consulting rather than cross-border investment capital. Option C is a broader balance of payments category that includes trade balances alongside income transfers.
Related questions
Q1. How is the relative price (MRT) of S with respect to T designated ?
Show answer Hide answer
Answer: B. 1/2
The relative price or marginal rate of transformation of S with respect to T is the inverse, 1/2. The ratio of production costs dictates that sacrificing one good yields twice the amount of the alternative. Mathematical...
Q2. What is a central question regarding new classical macroeconomics concerning the realism of its underlying assumption ?
Show answer Hide answer
Answer: D. of rational expectations.
New classical macroeconomics rests upon the foundational premise that economic agents possess rational expectations. Assuming rational expectations means individuals utilize all available information when forecasting fut...
Q3. The reduction or covering of foreign exchange risk is called ?
Show answer Hide answer
Answer: A. hedging
Hedging is a financial strategy used to minimize or eliminate exposure to foreign exchange risk. Investors and firms use forward contracts to lock in exchange rates and protect profit margins from fluctuations. Risk miti...
Q4. What is the ledger of a country's trade in goods and services termed ?
Show answer Hide answer
Answer: B. balance of trade
The balance of trade specifically records a country's exports and imports of goods and services. It isolates commercial trade transactions from financial transfers and primary income flows in the accounts. Net exports ca...
Q5. What term describes the sacrifice made when opting for a specific course of action ?
Show answer Hide answer
Answer: B. Opportunity cost
Opportunity cost measures the value of the next best alternative sacrificed. Every choice involving scarcity requires giving up alternative options. Economists use this concept to evaluate true decision costs accurately....
Q6. What is the effect of implementing antidumping tariffs ?
Show answer Hide answer
Answer: C. impose a price floor on foreign prices in the importing country
Antidumping tariffs establish a price floor for foreign goods to prevent them from being sold below fair market value. By penalizing predatory pricing, these tariffs artificially elevate the import price within the domes...