Two-Country Model: MacroFinance

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Description

This lecture covers the Two-Country Model in the context of MacroFinance, discussing concepts such as international trade, investment, current account, capital flows, external debt, growth, and sovereign default. It explores the relationship between saving, investment, interest rates, and global economic dynamics.

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https://mediaspace.epfl.ch/media/0_ivtn19dt

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Related concepts (176)

Sovereign default

A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full when due. Cessation of due payments (or receivables) may either be accompanied by that government's formal declaration that it will not pay (or only partially pay) its debts (repudiation), or it may be unannounced. A credit rating agency will take into account in its gradings capital, interest, extraneous and procedural defaults, and failures to abide by the terms of bonds or other debt instruments.

Default (finance)

In finance, default is failure to meet the legal obligations (or conditions) of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity. A national or sovereign default is the failure or refusal of a government to repay its national debt. The biggest private default in history is Lehman Brothers, with over

600 billion when it filed for bankruptcy in 2008 (equivalent to over

billion in ).

Global debt

The global debt is 305 trillion USD in 2022, including debt by public and private debtors. The total external debt owed by public and private debtors to creditors in other countries amounts to $76 trillion in 2019 according to the CIA World Factbook Explanation of the table: Public debt % of GDP: This is the total domestic and external debt of the government and its institutions as percent of the gross domestic product of the country.

Credit default swap

A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. That is, the seller of the CDS insures the buyer against some reference asset defaulting. The buyer of the CDS makes a series of payments (the CDS "fee" or "spread") to the seller and, in exchange, may expect to receive a payoff if the asset defaults.

Interest rate swap

In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with forward rate agreements (FRAs), and with zero coupon swaps (ZCSs). In its December 2014 statistics release, the Bank for International Settlements reported that interest rate swaps were the largest component of the global OTC derivative market, representing 60%, with the notional amount outstanding in OTC interest rate swaps of

381 trillion, and the gross market value of

14 trillion.