Question

What type of investment normally has a very positive balance of payment impact on the host country?

What type of economic orientation or view that perceives FDI to be exploitive in the host country?

What phenomenon occurs when there is a disequilibrium in the forex markets and traders can take advantage of it potentially make large profits?

Answer 1

Q.1 What type of investment normally has a very positive balance of payment impact on the host country?

Answer: The type of investment normally has a very positive balance of payment impact on the host country is foreign direct investment. FDI positively impact balance of payment impact on the host country. The reason is that FDI play vital role in economic growth of domestic or host country by improving its balance of payment through reducing its balance of payment deficit. This reason is considered as most important type of investment that has positive impact on balance of payment impact of host country/domestic country. FDI in  host country affect its petroleum sector, telecom sector, banking sector, textile sector and many more, and thereby has a very positive balance of payment impact on the host country. Flow of FDI to host country / domestic country positively impact its BOP because FDI impact capital account part of  balance of payment. At the same time FDI affect current account part of BOP by influencing the quantity of exports and imports by  host country / domestic country.

Q.2 What type of economic orientation or view that perceives FDI to be exploitive in the host country?

Answer: Although its true that FDI play key role in economic growth of host country. But it also generally found that, host country faces problems related to the economic backwardness of some section of the economy while some section or sector grow very fast. Which basically creates a type of dual dualism in economy of host country. Here dualism means, one section or sector grow more rapidly as compared to other sectors in the economy.

All such situation arises not due to the FDI inflow to host country but due to how its impact the various sectors of economy in the host country. Suppose one sector e.g Banking sector receive more FDI inflow as compare to other part of the host country. so, Banking sector grow more faster as compare to other section or sector of host country. In that way, FDI to be exploitive in the host country.

Q.3 What phenomenon occurs when there is a disequilibrium in the forex markets and traders can take advantage of it potentially make large profits?

Answer: When there is a disequilibrium in the foreign exchange market and traders can take advantage of it potentially make large profits, its depends on what is the consequences of disequilibrium in the foreign exchange market .If exchange rate increases than there is increase in exports and decline in imports. In such situation, current account part of balance of payments improve and thereby positively impact  balance of payment.

On the other hand, If exchange rate decreases than there is increase in imports and decline in exports. In such situation, current account part of balance of payments deteriorate and thereby adversely impact  balance of payment.