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Questions 13. What Is The Most Important Use of The Statement of The International Investment Position of A Nation?

The statement of a nation's international investment position can be used to project future income from foreign investments and payments on investments in that nation. Adding capital flows to the previous year's position should give the current year's position, absent discrepancies or valuation changes of direct investments. The benefits of the US becoming a net debtor include financing budget deficits without higher rates, more foreign investment creating jobs. However, risks include foreigners suddenly withdrawing funds causing a crisis, income draining future consumption, technology transfers weakening domestic control.

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108 views2 pages

Questions 13. What Is The Most Important Use of The Statement of The International Investment Position of A Nation?

The statement of a nation's international investment position can be used to project future income from foreign investments and payments on investments in that nation. Adding capital flows to the previous year's position should give the current year's position, absent discrepancies or valuation changes of direct investments. The benefits of the US becoming a net debtor include financing budget deficits without higher rates, more foreign investment creating jobs. However, risks include foreigners suddenly withdrawing funds causing a crisis, income draining future consumption, technology transfers weakening domestic control.

Uploaded by

Hailee Hayes
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Questions

13. What is the most important use of the statement of the international investment
position of a nation?
The statement of a nation’s international investment position can be used to project the
future flow of income or earnings from the nation’s foreign investments and the flow of
payments on foreign investments in the nation. Furthermore, adding the nation’s capital flows
during a particular year to its international investment position at the end of the previous year
should give the international investment position of the nation at the end of the particular year, in
the absence of a statistical discrepancy and if the stock of U. S. direct investments abroad and
foreign direct investments in the United States were revalued to reflect price and exchange rate
changes during the year.

14. What are the benefits and risks of the United States becoming a net debtor nation?
On the benefit side, large foreign investments allowed the United States to finance about half
of its budget deficit during the mid-1980s without the need for higher interest rates and more
“crowding out” of private investments. A portion of foreign investments also went into
businesses, farms, real estate, and other property, which made more rapid growth possible in the
United States. It has been estimated that foreign investments created about 2.5 million additional
jobs in the United States during the 1980s and also helped spread some new and more efficient
managerial techniques from abroad. To the extent that foreign investments went into directly
productive activities with returns greater than the interest and dividend payments flowing to
foreign investors, this investment was beneficial to the United States.
On the other hand, the portion of foreign investments that simply went to finance larger U.S.
consumption expenditures led to interest and dividend payments to foreign investors and
represents a real burden or drain on future consumption and growth in the United States. There is
also the danger that foreigners, for whatever reason, may suddenly withdraw their funds. This
would lead to a financial crisis and much higher interest rates in the United States. Rising income
payments to foreigners on their investments also means a worsening of the U.S. current account
balance in the future. They also drain resources and reduce growth in the rest of the world. On a
more general level, some people fear that foreign companies operating in the United States can
transfer advanced American technology abroad. This could also lead to some loss of domestic
control over political and economic matters in the United States as foreign executives and their
lobbyists become ever more familiar figures in the corridors of Congress, state houses, and city
halls.

Problem
14. Update Table 13.5 for the most recent year

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