In this chapter, we saw that financial market integration is necessary for countries to smooth consumption through borrowing and lending. Consider two economies: those of the Czech Republic and France. For each of the following shocks, explain how and to what extent each country can trade capital to better smooth consumption.

The Czech Republic and France each experience an EU-wide recession.

A strike in France leads to a reduction in French income.

Floods destroy a portion of the Czech capital stock, lowering Czech income.