The measurement of all international economic transactions that take place between the residents of a country and foreign residents is called the balance of payments (BOP)
List and explain three reasons why host-country BOP data is important to managers and investors.
What will be an ideal response?
Answer: BOP data is also important for the following reasons: 1) The BOP is an important indicator of pressure on a country's foreign exchange rate, and thus of the potential for a firm trading with or investing in that country to experience foreign ex-change gains or losses. Changes in the BOP may predict the imposition or removal of foreign exchange controls. 2) Changes in a country's BOP may signal the imposition or removal of controls over payment of dividends and interest, license fees, royalty fees, or other cash disbursements to foreign firms or investors. 3) The BOP helps to forecast a country's market potential, especially in the short run. A country experiencing a serious trade deficit is not as likely to expand imports as it would be if running a surplus. It may, however, welcome investments that increase its exports.
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