International finance: An Overview

1. International finance: An Overview

2. Balance of Payments • A balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world. • These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. • Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. • Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.

3. Balance of Payments

4. Balance of Payments-Thailand

7. Purchasing power parity (PPP) is a theory of long-term equilibrium exchange rates based on relative price levels of two countries. The concept is founded on the law of one price, the idea that in absence of transaction costs and official barriers to trade, identical goods will have the same price in different markets when the prices are expressed in terms of one currency. Purchasing Power Parity(PPP)

8. A country’s currency is overvaluedif the Big Mac price (Converted to dollars) is higher than in the US. A country’s currency is undervaluedif the converted Big Price is lower than the US price. Purchasing Power Parity(PPP)

9. Hedging Forward & Future Markets Options Call Put Managing Exchange rate Exposure

10. Hedging exchange rate exposure involves establishing an offsetting currency position such that the loss or gain of one currency position is offset by a corresponding gain or loss in some other currency. Hedging

11. With a forward contract, the company can lock in a specific fixed exchange rate for a future date and thus immunize itself from the loss ( or gain) caused by the exchange rate fluctuation. Forwards In addition to spot prices, 30-, 60- and 180 day forward prices are traded for dozens of world currencies.

12. Gives the buyer the right,(not obligation) to sell a specified number of foreign currency units at a fixed price until the options expiration date. Put Options

13. Call Options • Gives the buyer the right,(not obligation) to buya specified number of foreign currency units at a fixed price until the options expiration date.

14. Regional Market Characteristics and Preferential Trade Agreements Global MarketingChapter 3

15. This chapter looks at: Global trade organizations Four types of agreements Individual countries and their preferential trade agreements Introduction

16. Preferential Trade Agreements • Many countries seek to lower barriers to trade within their regions • PTAs give partners special treatment and may discriminate against others • Over 150 PTAs have been notified to the WTO • ASEAN- PR CHINA PTA (2005) • Thailand- Laos (1991)

17. Free Trade Area • Two or more countries agree to abolish tariffs and other barriers to trade amongst themselves. • Countries continue independent trade policies with countries outside agreement. • Rules of origin requirements restrict transshipment of goods from the country with the lowest tariff to another. • (ACFTA), in effect as of 1 January 2010 • (AIFTA), in effect as of 1 January 2010 NAFTA Protest in Ottawa

18. Customs Union • Evolution of Free Trade Area • Includes the elimination of internal barriers to trade (as in FTA) • AND establishes common external barriers to trade • Examples: The EU and Turkey, the Andean Community, etc.

19. Common Market • Includes the elimination of internal barriers to trade (as in free trade area) • AND establishes common external barriers to trade (as in customs union) • AND allows for the free movement of factors of production, such as labor, capital, and information • Mercosur is an example • Mercosur member countries -Brazil, Argentina, Venezuela, Paraguay and Uruguay.

20. Economic Union • Includes the elimination of internal barriers to trade (as in free trade area) • AND establishes common external barriers to trade (as in customs union) • AND allows for the free movement of factors of production, such as labor, capital, and information (as in common market) • AND coordinates and harmonizes economic and social policy within the union

21. Economic Union European Union Flag • Full evolution of economic union • creation of unified central bank • use of single currency • common policies on issues such as agriculture, social policy, transport, competition, mergers, taxation • requires extensive political unity • would lead to a central government in time

22. North America—NAFTA • Canada, United States, Mexico • NAFTA established free trade area • All three nations pledge to promote economic growth through tariff reductions and expanded trade and investment • No common external tariffs • Restrictions on labor and other movements remain U.S.-Mexico Border Crossing

23. NAFTA Income and Population

24. U.S. Goods Exports in 2008

25. U.S. Goods Imports in 2008

26. Asia-Pacific: The Association of Southeast Asian Nations (ASEAN) • Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam • Trading partners U.S., EU, China • Geographically close; historically divided • “ASEAN plus six” (Japan, China, Korea, Australia, New Zealand, India) working towards an economic community

27. ASEAN

28. World’s 2nd largest container port 2nd highest standard of living in the region behind Japan 4.2 million people 93% literacy rate Over 3,000 companies Crime is nearly nonexistent Singapore

29. European Union • 27 countries • 491 million people • Combined GNI of $14.7 trillion • Euro currency, 1999 • Harmonization of laws and regulations

30. Assignment -3

31. Looking Ahead to Chapter 4 • Social and Cultural Environments