About Me
Chartered Financial Analyst (CFA)
1 Ethical and Professional Standards
1-1 Code of Ethics
1-2 Standards of Professional Conduct
1-3 Guidance for Standards I-VII
1-4 Introduction to the Global Investment Performance Standards (GIPS)
1-5 Application of the Code and Standards
2 Quantitative Methods
2-1 Time Value of Money
2-2 Discounted Cash Flow Applications
2-3 Statistical Concepts and Market Returns
2-4 Probability Concepts
2-5 Common Probability Distributions
2-6 Sampling and Estimation
2-7 Hypothesis Testing
2-8 Technical Analysis
3 Economics
3-1 Topics in Demand and Supply Analysis
3-2 The Firm and Market Structures
3-3 Aggregate Output, Prices, and Economic Growth
3-4 Understanding Business Cycles
3-5 Monetary and Fiscal Policy
3-6 International Trade and Capital Flows
3-7 Currency Exchange Rates
4 Financial Statement Analysis
4-1 Financial Reporting Mechanism
4-2 Income Statements, Balance Sheets, and Cash Flow Statements
4-3 Financial Reporting Standards
4-4 Analysis of Financial Statements
4-5 Inventories
4-6 Long-Lived Assets
4-7 Income Taxes
4-8 Non-Current (Long-term) Liabilities
4-9 Financial Reporting Quality
4-10 Financial Analysis Techniques
4-11 Evaluating Financial Reporting Quality
5 Corporate Finance
5-1 Capital Budgeting
5-2 Cost of Capital
5-3 Measures of Leverage
5-4 Dividends and Share Repurchases
5-5 Corporate Governance and ESG Considerations
6 Equity Investments
6-1 Market Organization and Structure
6-2 Security Market Indices
6-3 Overview of Equity Securities
6-4 Industry and Company Analysis
6-5 Equity Valuation: Concepts and Basic Tools
6-6 Equity Valuation: Applications and Processes
7 Fixed Income
7-1 Fixed-Income Securities: Defining Elements
7-2 Fixed-Income Markets: Issuance, Trading, and Funding
7-3 Introduction to the Valuation of Fixed-Income Securities
7-4 Understanding Yield Spreads
7-5 Fundamentals of Credit Analysis
8 Derivatives
8-1 Derivative Markets and Instruments
8-2 Pricing and Valuation of Forward Commitments
8-3 Valuation of Contingent Claims
9 Alternative Investments
9-1 Alternative Investments Overview
9-2 Risk Management Applications of Alternative Investments
9-3 Private Equity Investments
9-4 Real Estate Investments
9-5 Commodities
9-6 Infrastructure Investments
9-7 Hedge Funds
10 Portfolio Management and Wealth Planning
10-1 Portfolio Management: An Overview
10-2 Investment Policy Statement (IPS)
10-3 Asset Allocation
10-4 Basics of Portfolio Planning and Construction
10-5 Risk Management in the Portfolio Context
10-6 Monitoring and Rebalancing
10-7 Global Investment Performance Standards (GIPS)
10-8 Introduction to the Wealth Management Process
3.6 International Trade and Capital Flows

3.6 International Trade and Capital Flows - 3.6 International Trade and Capital Flows

Key Concepts

Comparative Advantage

Comparative Advantage refers to the ability of a country to produce a particular good or service at a lower opportunity cost than other countries. Even if a country is less efficient in producing all goods (lacking absolute advantage), it can still benefit from trade by focusing on goods for which it has the lowest opportunity cost.

Example: Country A can produce 10 units of wheat or 5 units of cotton, while Country B can produce 8 units of wheat or 4 units of cotton. Country A has a comparative advantage in producing wheat, and Country B has a comparative advantage in producing cotton. By specializing and trading, both countries can increase their total output.

Absolute Advantage

Absolute Advantage occurs when a country can produce a greater quantity of a good or service with the same amount of resources than another country. A country with absolute advantage in multiple goods can still benefit from trade by focusing on the goods it can produce most efficiently.

Example: Country X can produce 20 units of cars with the same resources it takes Country Y to produce 15 units of cars. Country X has an absolute advantage in car production and can trade cars for other goods produced by Country Y.

Balance of Payments

The Balance of Payments is a systematic record of all economic transactions between a country and the rest of the world over a period. It consists of the Current Account (trade in goods and services, income, and current transfers) and the Capital Account (capital transfers and non-produced, non-financial assets).

Example: If a country exports more goods and services than it imports, it will have a surplus in the Current Account. Conversely, if it imports more than it exports, it will have a deficit. The Capital Account records investments, loans, and other financial transactions.

Capital Flows

Capital Flows refer to the movement of capital (money, investments, etc.) between countries. These flows can be direct (e.g., foreign direct investment) or portfolio (e.g., buying stocks and bonds of foreign companies). Capital flows can influence a country's economic growth, exchange rates, and financial stability.

Example: When investors from Country A buy stocks in Country B's companies, it represents a capital inflow for Country B. This can provide Country B with additional funds for development, but it can also lead to economic instability if the capital flows out suddenly.

Exchange Rates

Exchange Rates are the value of one country's currency in terms of another country's currency. They are determined by supply and demand in the foreign exchange market and can be influenced by factors such as interest rates, inflation, and economic stability.

Example: If the exchange rate between the US Dollar (USD) and the Euro (EUR) is 1.2, it means 1 USD can be exchanged for 1.2 EUR. Fluctuations in exchange rates can affect international trade, as they influence the cost of imports and exports.

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