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FW1 - Mental Imagery
FW2 - Visioning
FW3 - Creativity
FW4 - Micro economy
FW5 - Macro economy
FW6 - Globalization
1. Trade
2. Balance of payments
3. Exchange rate
4. Content of exchanges
5. Globalization
6. Do it yourself
7. Author

FW7 - Real world
FW8 - Country rating
FW9 - Global trends
FW10 - Sector rating
FW11 - Business idea
FW12 - First sketch
FW13 - Consumer analysis
FW14 - Supplier analysis
FW15 - Marketing mix
FW16 - Operations
FW17 - Organization
FW18 - Accounting
FW19 - Financial statements
FW20 - Financial analysis
FW21 - Cash flow
FW22 - Business name
FW23 - Decision making process
FW24 - Check up point
FW25 - Communication
FW26 - Negotiation
FW27 - Raising money
FW28 - Project management
FW29 - Management
FW30 - Strategy


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FW6-ECONOMIC GLOBALIZATION

 

YOUR POSITION

Look at the map

MAP

304 days before opening

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching


INTRODUCTION

The International macroeconomics course is summarized under the title: Economic globalization. It's a short lesson because we provide you with many useful readings.

Duration

Lesson: 0,5 hours

External readings: 9 hours

Do it yourself: 0

Total: 9,5 hours

Objectives:

Our objectives are to improve your business knowledge and therefore, to give you some fundamentals about:

-Trade

-Balance of payment

-Exchange rates

-Economic Globalization.

By the end, you will be able to discuss these topics and to recall them with respect to your own project.

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching


1-TRADE

Trade must now be introduced into our GDP equation:

E stands for exports and i imports. The percentage of exports may be very high. It makes up 50 % of the GDP in some countries.

If net exports are positive, the nation has a positive Balance of Trade. If they are negative, the nation has a negative Balance of Trade.

11-Protectionism and free trade

Some countries try to protect their own markets. This policy, called protectionism, uses barriers to keep out imports. Barriers include high tariffs (taxes on imported goods) and quotas.

In actual fact, protectionism leads to very poor results and penalizes a country's growth. In accordance with Ricardo's argument, exchange is beneficial when the price of goods in country A differs from the relative price of the same goods in country B.

 

USA

JAPAN

 

Price

Price

Product A

20 $

6 $

Product B

10 $

2 $

Relative price A/B

2

3

Here, the United States would be better to specialize in product A, and Japan in product B. If the price of product A in Japan was 4 $, the ratio A/B would be the same as in the United States, and there would be no benefit from an exchange.

If the countries decided to specialize in this way, employees in the USA who lose their jobs in the product B sector will be able to find new jobs in sector A.

It has been calculated that due to custom duties in B sector, the production cost of one job is between 10 or 20 times higher for the consumer than the cost due to the loss of this one job.

Free trade is the best way to improve global growth and well being.

External readings and quiz:

Visit the international economic study center: http://internationalecon.com . Click on "international trade theory and policy analysis".

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching


2-BALANCE OF PAYMENTS

Nations keep track of their international transactions by means of the Balance of Payments (BOP). The BOP registers the current account which keeps track of goods and services (exports minus imports) and the capital account which keeps track of physical and financial assets flowing into the country.

Current account

Credit

Debit

Balance

       

1. Goods exported

300

   

2. Goods imported

 

350

 

Balance of trade 1 and 2

   

- 50

3 Fees and royalties received

30

   

4. Foreign investment income

10

   

Balance of current account 1 and 4

   

- 10

Capital account

     

Change in assets abroad

 

90

 

Change in foreign assets within the country

100

   
     

+ 10

Balance

   

= 0

When the current account is negative, you must increase what you borrow to other nations. The Capital flow coming from borrowing gives a positive capital account. It's just like a cash account. When you borrow your cash account increases.

When the current account is positive, the rest of the world must borrow from your country to pay the difference. Capital flow out of your country gives a negative capital account.

For this reason, the balance of payments will always be zero. When one account is positive, the other account is negative by the same amount.

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching


3-EXCHANGE RATE

-Definition: The exchange rate is the rate at which one country’s currency is converted into another’s.

In January 1999, 1 U.S. dollar could buy 115 Japanese yen, or 62 percent of one British pound. One country’s currency is worth more than another when it is in demand.

  • Trading requires currency to pay for goods and services: When the United States needs to buy English clothes, importers sell US dollars and buy British pounds to make payments in British currency.
  • Demands for currency for attractive investments: Higher relative interest rates in the United States prompt purchases of bonds by foreigners.
  • Demands for a safe haven: People in trouble in their own country send their money offshore, buying other countries’ currencies.
  • Lower inflation in some countries attracts money from other countries.

Exchange rate movements are crucial for companies involved in international trade.

External readings:

Visit once again http://internationalecon.com . Click on "international finance theory and policy analysis". You will find a very complete course about the balance of payment and the exchange rates.

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching


4-THE CONTENT OF INTERNATIONAL EXCHANGES

international trade enables technical progress accumulated in one country to be spread to all other countries.

Between 1960 and 1995, world trade increased from 24% to 42% of international GDP. The proportion of the value of technological goods in international exchanges overall increased as follows between 1976 and 1996:

 

1976

1996

Technological goods

33 %

54 %

Raw materials

45 %

24 %

Secondary goods

21 %

18 %

Miscellaneous

1 %

4 %

 

100 %

100 %

Technological goods are goods involving a high research effort. South Eastern Asian countries are extremely successful since they opened up to the international market. Their success is also due to their capacity to equip themselves with a good technology.

Direct private investment reinforces this trend. Direct private investments by multinationals are largely to thank for the spread of the most recent technologies. The Middle East and Africa (not to mention the Eastern block) where foreign investment was greatly hindered have remained poor.

International trade is mutually beneficial, especially for the poorest countries who can profit from technology and knowledge gained elsewhere. Just as knowledge spreads between production units in the same country through exchange, knowledge spreads from one country to another for the same reasons by means of international trade. Governments who oppose the spread of technical progress by imposing customs duties and quotas seriously penalize their population.

Down-earth advice

International trade is a good opportunity for any new business but you have to be careful about bad payers or suppliers. I recommend you to establish a close relation with your banker if you intend to develop export or import.

Your banker has correspondents in foreign countries and can provide you with useful information's. What is more, all trading operations must imply letters of credit and others means to ensure that you will be paid.

In any transactions, always put your banker between you and the foreign customer or supplier. Your banker is your guarantee. If the banker does not want to play this role, it means that he fears a bad end of the transaction. In this case you have better to follow his advice and to give up the deal.

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching


5-GLOBALIZATION

-Definition: Economic globalization is the increasing world integration through trade, financial flow and knowledge.

More precisely it means that factors of production are used on a world scale.

There are also cultural, political and environmental dimensions of globalization. This broaden field explains the emotive force of the concept.

The word globalization has really begun to be in common usage since the 1990s in connection with advances in electronic communications, and with a strong increase of private capital flows from developed to undeveloped countries.

The Globalization of factors of production implies:

-Capital: Direct foreign investment have increased mainly towards East Asia. Transnational corporate's relocate their plants abroad in order to get the better allocation of factors.

-Labor: Workers move from one country to another in order to get better wages.

Down-earth advice:

On the other hand, in many business, cheap labor force can be taped from anywhere in the world. For example, with internet you can order paperwork in Philippines and receive the output on your computer. Cost could be ten fold lesser than the same work ordered in your country.

-Knowledge: Direct foreign investments bring technical innovations and better management. On the other hand, world wide web brings the knowledge resource available for every body at low costs.

However, It is yet too soon to appreciate the real effect of globalization on growth and productivity on a world scale.

External readings and power point presentation:

Go to www.imf.org/external/ . Click on "site map" and then on "globalization". You will get a full course about globalization.

Go to www.newsbatch.com/globalization.htm . You will get here a full account of the discussions about globalization with a description of the main actor role such as world bank, World trade organization and international monetary fund.

Go to www.wri.org . Click on "publications and multimedia", then on "power point" and then on "global trends". You will get here a presentation and in clicking on the slide, you will obtain the full text.

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching


Lesson summary:

Protectionism reduces the productivity of nations and jeopardizes well being.

When balance trade is positive, capital account is negative and vice versa. As a result, the balance of payments is always equilibrated. Exchange rate fluctuations are crucial for companies largely involved in international trade.

Globalization enhances the share of international exchanges in the world economy.

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching


DO IT YOURSELF

Use these knowledge's and readings for improving your personal credibility in the business community. Use it also for stimulating your creativity in order to get your business idea.

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching


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