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Finance, Tax havens, Currency instability may need government intervention…
Finance
Global economic and financial flows
Balance of Payments
Economic indicator tracking transactions within a country
Capital account
Investments abroad
Current Account
Imports/exports
Transfer of money
Financial Account
Global imbalances
Creating imbalances that dampen the economy in some area
Inequality
Surplus countries
Spend more = Deficit countries closing gap
High savings = deficit countries needing to also save
= lowers demand & investment
Longer recessions
Deficit countries
Reduce too fast
= Slump in demand
Reduce too slowly
= further financial shocks
Foreign direct investment
Investment within another country: Ability to produce/ sell products/ services
Building factories
Investing in improving roads
Portfolio investments
Investment in another country
Buying shares
Foreign exchange market
If the £ is strong compared to $ and weak compared to EUR
Optimal time to buy $ and sell to EUR
Example: The pound (£) is high (strong) compared to $ USD
More to purchase £
Reduces demand
Expensive exports
Costs less to buy a foreign currency
Increases purchasing power
Cheaper imports
Example: The pound (£) is low (weak) compared EUR
Less needed to purchase £
Increases demand
Cheaper exports
Costs more to buy foreign currency
Decreases purchasing power
Expensive Imports
Global accounting Standards: IFRS
Facilitates businesses
Increases credibility
Investment opportunities
access to credit
Adopted by 100+ countries
Comparability
Transparency
Quality
Simplifies reporting for multinationals
International tax rates
Transfer Pricing
Companies from the same multinational group trade with each other
Arms length principle
Acceptable for tax purposes
genuine negotiation in a market
mispricing
Shifting profit to pay less tax
Unitary taxation with profit apportionment
Cross border tax rules make it difficult to collect what is owed
Schemes to shift profits across borders
Tax avoidance
Guarding one's ability to raise/ lower taxes
co-operation needed
Governments choose tax rates in their jurisdictions
International Finance Reporting
Evolution of Improved reporting
Imperialism
Economic development
Colonisation
Change
Political Events
Joining the European Union
War
Economic Events
Reporting effective while in equilibrium
Financial scandal evokes change
The contingent model
Tax havens
Currency instability may need government intervention