1.3.3 International Economic Factors
Five to ten minutes on this one unit: what the exam wants, the idea in plain words, then straight into the trap and the practice.
The outline wants three things told apart by name: the balance of payments, GDP against GNP, and which way an exchange-rate move pushes imports and exports.
The balance of payments is the record of one country's transactions with the rest of the world: what flows in, and what flows out. A country that sells more abroad than it buys is running a surplus on that record. One that buys more than it sells is running a deficit. That is the whole of it, and a stem here is usually asking you to read a direction, not to compute anything.
GDP and GNP sit one letter apart for a reason. GDP measures output produced inside a country's own borders, by anyone at all. GNP measures output produced by that country's own citizens and companies, wherever in the world they happen to be. Location, or ownership. A Japanese car plant in Ohio counts toward American GDP because of where it sits, and toward Japanese GNP because of who owns it.
An exchange rate is the price of one currency in terms of another, and it moves the value of everything crossing a border. A stronger home currency buys more abroad, so imports get cheaper, and it makes home-made goods cost more to a foreign buyer, so exports get dearer. A weaker home currency does the reverse: imports dearer, exports cheaper abroad. Nothing else changes, and no rule governs any of it.
None of these three carries a FINRA rule number, which tells you what kind of question to expect. These are naming questions. Read the stem for the direction it describes, name the term that matches, and move on.
The word stronger sounds like good news for a seller, so candidates attach it to easier exports. It runs the other way. A stronger home currency makes this country's goods more expensive to a foreign buyer, and makes foreign goods cheaper here.
1 trap this unit sets that are not about one rule on its own. Read them once now, and again the night before.
Common trap: Leading and lagging indicators are roughly the same idea. Correct: Leading predicts the turn. Lagging only confirms it after. Predicts, or confirms: pick one.
2 questions on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.
The dollar strengthens sharply against the euro. What happens to the price of imported European goods for U.S. buyers, and to U.S. exporters selling into Europe?
How sure are you?
Unit: SIE outline 1.3.3
What does GNP measure, as distinct from GDP?
How sure are you?
Unit: SIE outline 1.3.3