International Economics US Direct Investment Essay

Interest rates usually increase to curb inflation as to encourage investment to remove currency from the consumer economy.

Exchange rates; primarily floating rates and managed floats

Exchange rates refer to the difference between currency rates when exchanging the base currency (the currency in possession) for the exchanged currency. For example 1 USD:: 1.60 GBP is an exchange rate denoting 1 USD can be readily exchanged for 1.60 GBP. Floating rates are used in developed economies that do not have volatile swings in its currency value and therefore can rely on a market rate with no fiscal intervention. An example of a floating rate economy is the U.S. A managed float requires the value of a specified currency to adjust to a single dominant currency or to a stable measure of value such as gold. An example of a fixed rate is the Chinese Yuan, adjusted by the Chinese government as a function in the movement of the U.S. dollar. This type of intervention is a better hedge against inflation than the floating rate subject to market conditions.

Outsourcing; Benefits and costs

Outsourcing is the term used to describe the shift of operations from the domiciled country into a foreign country. This is done largely to take advantage of tax breaks offered by foreign governments and the utilization of cheaper labor and looser regulation. The proliferation of global education has created a highly skilled international workforce that is employable at a relatively lower wage with little in legacy obligations than domestic counter-parts. The costs of outsourcing include the brain drain, which is when national knowledge workers expatriate overseas to work. Additionally, outsourcing destroys local communities by depriving the constituency of economic opportunity and financial empowerment. The result is displacement of large populations and a generation gap where the income of the children do not exceed that of the parents, causing a reversal in the trend of American progress.