Considering Economic Consequences Now Essay

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Economics

There are definitely some parallels between a current account surplus and a foreign investment. In fact, it is not incorrect to consider the former as an equivalent to the latter. The reason such a statement is accurate is because of the very definition of these terms. These definitions involve both denotations and connotations. Firstly, the congruence between a foreign investment and a current account surplus is based on the denotation of a current account. This term is generally considered a record of the services and goods that go into and out of a particular country, particularly as outlined by Gerber in International Economics. In terms of connotation, this term is suggestive of the facets of trade and of international trade in particular. The goods and services that come into and leave out of a country are connotative of commerce and of the forms of trade that countries engage in internationally.

Thus, a current account surplus is akin to a favorable trade balance between international entities. If one country has such a surplus, it means that it has a favorable balance of trade. One can consider that balance akin to the investment of another country -- in terms of this investment being in goods or services. At any rate, the latter country certainly has a vested interest in the monetary affairs of the former country, and one which is advantageous to the former. That relationship can in some instances be advantageous to both countries. However, it certainly is to the country that has the current account surplus.

Several moral hazard problems are existent in response to a financial crisis. One of the most eminent of these pertains to the nature of the governmental intervention that can occur in response to such a crisis. There is a danger that the financial institutions that are succored by the government can actually take this help for granted. Thus, they have less incentive to be fiscally responsible and moderate, and a greater incentive to take risks since they know they have a proverbial safety net in potential federal intervention.

Ultimately, then, the moral hazard exists for the federal government and the nation as a whole. The banks can become accustomed to its influence and its aid in times of need. The government then faces a situation in which it may need to bail out banks in time of crises to avoid an even bigger national crisis. Alternatively, it may also face situations in which it is disadvantageous to help financial institutions because they will essentially be taking advantage of that help. The financial institutions face a similar dilemma, in that they do require assistance on the one hand, yet may actually become dependent upon it on the other hand. All of these issues problems, from these varying perspectives, are intrinsically related crises. The moral aspect of these problems pertains to the question of whether or not it is right for the government to help institutions that can be deliberately irresponsible (for their own personal gain).

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In some instances it might not be.

Prior to denoting the steps that have been proposed to prevent exchange rate crises, it is necessary to explicate what these phenomenon are. Exchange rate crises occur when there is a sudden devaluation in the currency of a particular country. As a result, its' currency is extremely circumscribed -- if not useless -- in paying off its debts to other international entities. Therefore, one of the foremost steps that is proposed when attempting to prevent exchange rate crises is to utilize federal intervention. This intervention is oftentimes used to help individual banks to maintain their financial standings in good order, to prevent exchange rate crises from occurring. Additionally, other steps include the deployment of regulatory agencies and federal regulation pertaining to the financial institutions in a county. These regulations are measures to again ensure that banks are operating according to standards that are good for business and for a nation's economic health. Ensuring such health is an integral way of preventing an exchange rate crises from occurring. Additionally, implementing measures for increase transparency can help in this regard as well.

Other means of preventing exchange rate crises include cutting a country's deficit in regards to its budget. Another preventive action is increasing interest rates, which can help to preserve the valuation of a particular country's currency. Permitting the currency of a country to float can also help to prevent exchange rate crises, because doing so can produce a positive effect on a nation's currency and its value.

Canada's motives for proposing and signing the Canadian-U.S. Free Trade Agreement primarily involved fostering a beneficial relationship with the U.S. Regarding trade. Specifically, Canada was attempting to seek the sort of auspicious trade relationship that was benefit both itself and the U.S. The U.S. was once one of only two superpowers in the world (alongside the Soviet Union). Therefore, it was advantageous to Canada to establish the sort of trade relations with the U.S. that enabled it to leverage some of the latter's boons including its large population, manufacturing, and technical experience (partly in the form of its abundant supply of Nobel Prize winners).

By establishing this particular trade agreement, Canada was able to succeed in bolstering the trade and economic proficiency of itself and the U.S. By 2011, the pair had succeeded in producing two-way exchanges of goods at nearly $600 billion dollars, according to information in Gerber's text. Therefore, when Canada proposed the Canadian-U.S. Free Trade Agreement, they were motivated by establishing one of the world's top bi-lateral trading relationships with the U.S. They were also partly motivated by the fact that there are a number of similarities between these two countries, particularly in terms of culture. Those type of cultural similarities (especially the similarities in Westernization and in the founding of these two country's) helped to form the basis for the partnership between them that has been….....

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