Economics: Economics in a Global Context
　　This study session introduces economics in a global context. The first reading explains the flows of goods and services, physical capital, and financial capital across national borders. The reading explains how the different types of flows are linked and how trade may benefit trade partners. The accounting for these flows and the institutions that facilitate and regulate them are also covered. The payment system supporting trade and investment depends on world currency markets. Investment practitioners need to understand how these markets function in detail because of their importance in portfolio management and economic analysis. The second reading provides an overview of currency market fundamentals.
　　READING ASSIGNMENTS
　　Reading 20 International Trade and Capital Flows by Usha Nair-Reichert, PhD, and Daniel Robert Witschi, PhD, CFA
　　Reading 21 Currency Exchange Rates by William A. Barker, CFA, Paul D. McNelis, and Jerry Nickelsburg
　　LEARNING OUTCOMES
　　READING 20. INTERNATIONAL TRADE AND CAPITAL FLOWS
　　The candidate should be able to:
　　a compare gross domestic product and gross national product;
　　b describe benefits and costs of international trade;
　　c distinguish between comparative advantage and absolute advantage;
　　d explain the Ricardian and Heckscher-Ohlin models of trade and the source(s) of comparative advantage in each model;
　　e compare types of trade and capital restrictions and their economic implications;
　　f explain motivations for and advantages of trading blocs, common markets, and economic unions;
　　g describe the balance of payments accounts including their components;
　　h explain how decisions by consumers, firms, and governments affect the balance of payments;
　　i describe functions and objectives of the international organizations that facili?tate trade, including the World Bank, the International Monetary Fund, and the World Trade Organization.
　　READING 21. CURRENCY EXCHANGE RATES
　　The candidate should be able to:
　　a define an exchange rate, and distinguish between nominal and real exchange rates and spot and forward exchange rates;
　　b describe functions of and participants in the foreign exchange market;
　　c calculate and interpret the percentage change in a currency relative to another currency;
　　d calculate and interpret currency cross-rates;
　　e convert forward quotations expressed on a points basis or in percentage terms into an outright forward quotation;
　　f explain the arbitrage relationship between spot rates, forward rates, and interest rates;
　　g calculate and interpret a forward discount or premium;
　　h calculate and interpret the forward rate consistent with the spot rate and the interest rate in each currency;
　　i describe exchange rate regimes;
　　j explain the effects of exchange rates on countries’ international trade and capital flows.
　　　
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