Global Economic Environment

DEVELOPMENT
-BALANCE OF PAYMENTS
-OVERVIEW OF INTERNATIONAL FINANCE

emergence of global markets?
b. What was the percentage of economic

integration at the beginning of the 20th century and what is the precentage now?
c. Which product can be use as an example to show such market integration?

shaping a number of new realites to be taken into

acount:
Capital movements replace trade as the driving force of economy
Production is uncoupled from employment
a. which economic activity in USA is a clear example of this disparity?
Countrys' economies are subordinate to global economy
b. What is the secret of the succes of Japanese and German companies?
Pure socialism prove to be inefficient as economic system
c. How socialist countries adapted to new global market conditions?
e-commerce has diminished the importance of national barriers
d. which two inventions made possible the informatic era?

market and the competition in each country
c. by mix approach

with capitalism
d. PC's and the Internet

(Private vs State)
Market Capitalism
Centrally Planned Socialism
Centrally Planned Capitalism
Market Socialism

government
Trade and Capital Flows
The commanding Heights
Services provided by the state

and funded through taxes
Institutions
Markets

of Government Autocratic one party system
Dominated by another state
Democracy with

multiparty system
Unstable terrorist nation

board or exchange control
There is no trade
Dominated by goverment

The commanding

heights Transportation
-Are they owned and operated by the state? Communication
-Mix of state and private ownership? Energy
-All private
-With or wothout controlled prices

state -Pensions and education and funded through taxes

(no health care)
-Privatized systems dominate

Transparency
Standards
Institutions No corruption
Free press
Strong court

dominated by monopolies, cartels, and concentrated industries
Markets Socialized market with cooperation

between business, government and labor (little entrepreneurial support)
Planning includes price and wage control and it is dominated by the center

capita less than $ 936
Lower middle income countries: GNI

per capita from $936 to $3705
Upper middle income countries: GNI per capita from $3706 to $11455
High income countries: GNI per capita over $11455

-Little industrialization, high agriculture (peasants farming)
-Low literacy rates
-Reliance on foreign

aid
-Political inestability / unrest
Exercise:
a. Why is Bangladesh genuine market opportunity?
b. Which measures were taken by india to promote market development?
c. Which are some of indias world class companies?
d. Which characteristic makes India a good place to sell products and services?

is favored by a trade agreement (MFA) -Mul-Fiber Arrangement-
It sells

in places others can't (like USA where chinese products are restricted)
b. Eliminating import license requirements
Reducing tariffs
Easing restrictions on Foreign Investment
Liberalizing the rupee

$3705
-Rapid expansion
-Labor forces target foreign markets
(Russia, China)
Exercise:
a. What

is their competitive advantage?
b. Why is the Chinese market attrative for other countries?
c. How is China supporting its export led economic transformation?

and textiles.
b. becouse of its vast size and market potential.
c.

Infrastructure projects (airports, cargo ports, railroads, etc)

$11455
AKA industrialized or developing countries.
-Low percentage of people involved in

agriculture
- Increased degree of urbanization
- High literacy rates
- Wages growth
(Russia, Brazil)

contrasting situations can be found in Brazilian economy?
c. Are there

any similar contrasts in China?

economy, population, territory, and natural resources
b. while distribution services are

computarized, horse drawn carts are a common way to deliver goods.
c. your opinion

a country and the rest of the world.
It can be

measured by analysing the Current accounts, and the Capital Accounts
The current account: is a broad measure that includes:
-merchandise trade -Service trade and
-Some financial transfers (humanitarian aid)
A country with negative current account balance has trade deficit when the flow of money exceeds the inflow of money for sales exports. (it is buying more than it sells). On the other hand, positive current account balance translates in trade surplus.
Capital account: is a record of all long term direct ivestment, portafolio investment, and other short and long term capital flows.

capital account transactions show surplus. In contrast, it gives up

reserves when the net shows a deficit.
Exercise:
a. Why USA shows a growing trade deficit?
-increased imports from china
-insatiable demand for imported products
-the cost of military operations in middle east
(USA balances the situation with a continuos and growing surplus on services)

role: buys and sells currency to influence exchange rates
-currency speculators
-currency

conversion issue for companies
Purchasing power parity
Economic exposure
Managing exchange rate exposure