International

Economics and
Global Business
 Learning Objectives

INTERNATIONAL EXCHANGE RATES GLOBAL MARKET IMPACT OF GLOBAL

TRADE COMPETITION ECONOMIC TRENDS
ON BUSINESS
DECISIONS
 Trade refers to the exchange of goods,
services, or resources between different
entities, such as firms, individuals, or
countries

Trade policies are policies that govern the

exports and imports of the country

Trade Tariff is the tax imposed on imported goods

Import quota is the limit imposed on the

quantity of goods imported

Export developments are internal

measures being implemented by the
government to improve exports (in case of
negative net export)
 Wholesale trade is a mode of
exchange in which products are
purchased and processed in large
quantities and sold to resellers, specialist
users, or companies, but not to end

Domest customers, in batches of a specified

quantity

ic Trade
Retail trade is the business activity
associated with the sale of goods to the
final consumer, the ultimate customer. It
is the link between wholesalers or
manufacturers and the customers of the
product. Typically, retailers sell goods in
small quantities to consumers for
personal use, not for resale or business
use.
 Market Structure: The nature of trade
can be influenced by the market
structure in which a firm operates—
whether it's a perfect competition,
monopoly, oligopoly, or monopolistic
competition. These structures determine

Domest pricing strategies, competition levels,

and how firms respond to market
conditions.

ic Trade Supply and Demand: Trade is driven

by changes in supply and demand in the
market. Understanding shifts in demand
or supply can help managers make
informed decisions about production,
pricing, and marketing strategies.
 Comparative Advantage: This principle suggests
that countries should specialize in the production of
goods where they have a lower opportunity cost,
and trade these goods with other countries. By
doing so, both parties can benefit from a higher
level of total production and consumption than they
would achieve individually.
Trade Barriers: Managers must consider tariffs,

Internatio quotas, and other restrictions imposed by

governments that can affect the flow of goods and
services across borders.
nal Trade
Exchange Rates: The value of one country's
currency relative to another can impact
international trade. Managers need to monitor
exchange rate fluctuations, as they can affect the
price competitiveness of their products in
international markets.
 Import trade refers to the purchase
and bringing of goods or services into a
country from abroad for the purpose of
selling them within the domestic market.

Import It is a vital aspect of international trade,

contributing to the exchange of goods
between countries and fostering
Trade economic relations across borders.

Importing allows businesses and

consumers to access products not
available locally or those that can be
produced more efficiently or at a lower
cost in other countries
Import trade is a crucial component of
the global economy, offering benefits
like consumer choice, access to
resources, and economic efficiency.

However, it also comes with challenges

such as trade imbalances, dependency
on foreign sources, and potential harm
to local industries.

Understanding the dynamics of import

trade helps businesses make strategic
decisions and governments manage
trade policies that balance international
trade relationships.
 Purpose of Imports:
1.Diversification of Goods: Importing
provides access to a wider variety of
goods and services that may not be
available domestically, such as exotic
Key fruits, advanced technologies, or luxury
items.
Aspects of 2.Cost Efficiency: Sometimes, importing
is cheaper than producing certain goods
Import locally due to lower labor costs, more
Trade favorable production conditions, or
economies of scale in other countries.
3.Quality Improvement: Imported
goods may be of higher quality or
better suited to local tastes and
preferences than domestically produced
alternatives.
 Process of Importing:
• Customs and Tariffs: Goods entering a country
are subject to customs regulations, which include
duties (taxes), tariffs, and import quotas. These
regulations help governments manage trade
balances, protect domestic industries, and
Key generate revenue.

Aspects of • Documentation: Importing goods usually

requires a series of legal and administrative
processes, including bills of lading, invoices,
Import packing lists, and import permits. Businesses must
comply with both international trade laws and
Trade domestic import laws.
• Shipping and Logistics: The physical movement
of goods across borders involves international
shipping, which can include air, sea, and land
transportation. Importers need to manage
logistics, including packaging, warehousing, and
distribution upon arrival.
 Types of Goods and Services Imported:
• Raw Materials: Many countries import raw
materials for manufacturing, such as oil,
minerals, metals, and agricultural products.
• Consumer Goods: Countries often import
Key finished consumer goods, including
electronics, clothing, and cars.
Aspects of • Technology and Expertise: Advanced
Import technological products and services, such as
machinery, software, and technical
Trade expertise, are commonly imported to
support innovation and development in
various sectors.
• Services: Importing isn't limited to physical
goods. Services like banking, education, and
consulting are also traded internationally.
 Benefits of Import Trade:
• Access to Resources: Imports allow
countries to access resources that are
unavailable or scarce in their domestic
markets.
Key • Economic Efficiency: Countries can focus
on producing goods they are most efficient
Aspects of at making, while importing goods that are
cheaper or better produced elsewhere,
Import improving overall economic efficiency.
Trade • Consumer Choice: Consumers benefit from
a wider range of products at different price
points, improving their standard of living.
• International Relationships: Engaging in
import trade fosters stronger economic and
political relationships between countries.
 Export trade refers to the sale and
shipment of goods or services from one
country to another.
It is a key component of international trade,
enabling countries to sell their domestically

Export produced goods and services to foreign

markets.

Trade Exporting plays a vital role in fostering

economic growth, creating jobs, and
increasing a country's foreign exchange
reserves.
It allows firms to expand their market reach
beyond their borders and to take advantage
of global demand for their products.
Export trade is essential for economic growth,
international relations, and the competitiveness of
businesses in the global marketplace.

It allows countries to capitalize on their strengths,

access new markets, and diversify their sources of
revenue.
While exporting provides many benefits, it also
comes with challenges, such as navigating trade
barriers, managing logistical costs, and dealing
with international risks.
Governments and businesses alike must adopt
strategies that enhance the benefits of export trade
while mitigating its risks.
 Purpose of Exports:
• Market Expansion: Exporting allows companies
to access new markets, increasing their
customer base and potential sales.
• Economic Growth: By increasing trade, exports
Key contribute to a country's overall economic
development, helping to create jobs, improve
Aspects of productivity, and increase national income.
• Diversification of Revenue: Relying on foreign
Export markets helps businesses reduce dependence on
local markets, offering a buffer against economic
Trade downturns or stagnation in the domestic
economy.
• Foreign Exchange Earnings: Exports generate
foreign currency for the exporting country, which
is essential for paying for imports, servicing
external debt, and stabilizing the economy.
 Process of Exporting:
• Market Research: Before exporting, businesses need to
conduct research to identify potential markets for their
products. This includes studying demand, competition,
pricing, cultural preferences, and trade regulations in
target countries.

Key • Legal and Regulatory Compliance: Exporting involves

navigating both the export regulations in the home

Aspects of
country and the import regulations of the destination
country. These may include export permits, customs
documentation, and compliance with international trade
Export agreements.
• Shipping and Logistics: The physical movement of
Trade goods involves choosing transportation methods (air, sea,
or land), arranging for packaging, insurance, and customs
clearance. Logistics management is critical to ensure
timely and cost-effective delivery.
• Payment and Risk Management: Exporters must
determine payment terms (e.g., letter of credit, advance
payment) and assess risks (e.g., exchange rate
fluctuations, political instability) involved in dealing with
foreign customers.
 Types of Goods and Services Exported:
• Raw Materials: Countries with abundant natural
resources often export raw materials such as oil,
minerals, and agricultural products to meet global
demand.

Key • Manufactured Goods: Exporting manufactured

goods like electronics, machinery, vehicles, and

Aspects of chemicals is a common practice, as these products

often have a high demand in foreign markets.

Export • Technology and Intellectual Property: Exports

aren't limited to physical goods. High-tech

Trade products, software, intellectual property, and

services like education and consultancy are also
significant exports.
• Services: Some countries export services such as
banking, tourism, entertainment, and education.
Service exports have become an increasingly
important part of global trade.
 Benefits of Export Trade:
• Economic Development: Exports contribute
significantly to the growth of a country’s GDP,
providing opportunities for economic development
and reducing unemployment.

Key • Foreign Currency Reserves: By exporting

goods and services, countries earn foreign
Aspect of currency, which can be used to pay for imports,
service national debt, and stabilize the economy.

Export • Competitive Advantage: Exporters can

leverage their strengths in production, technology,
Trade and specialization to compete globally, gaining a
competitive advantage in foreign markets.
• Improved Domestic Industries: Exposure to
international competition often leads to innovation
and improvements in product quality and
efficiency, which can benefit domestic consumers.
 Challenges of Export Trade:
• Export Barriers: Exporters must overcome trade
barriers, such as tariffs, quotas, and non-tariff
barriers (e.g., product standards or labeling
requirements) in foreign markets.

Key • Logistical Costs: Shipping goods internationally

can incur high costs, including transportation,
Aspect of insurance, and customs duties, which may affect
the competitiveness of the product in foreign
markets.
Export • Political and Economic Risks: Exporters are
Trade exposed to risks related to political instability,
economic downturns, or changes in trade
regulations in foreign countries.
• Currency Fluctuations: Exchange rate
fluctuations can affect the price competitiveness
of exports, making them either more expensive or
cheaper for foreign buyers.
 • Entrepot trade refers to the
process of importing goods
into a country or region, and
then re-exporting them to
other destinations, often with
minimal processing,
modification, or value
addition.

Entrepot • The main idea behind

entrepot trade is to serve as

Trade a trans-shipment hub where

goods pass through on their
way to their final destination,
without staying in the
country for long periods.
• This type of trade is a key
component of global supply
chains, especially in regions
or ports strategically located
for international trade.
• Entrepot trade is an essential part of global trade
systems, allowing goods to move efficiently from one
part of the world to another with minimal processing or
modification.
• It serves as a crucial intermediary stage in the supply
chain, benefiting from strategic locations, favorable
customs regulations, and logistical infrastructure.
• By facilitating the movement of goods between
countries, entrepot trade hubs help optimize global
trade, foster economic development, and provide profit
opportunities for traders and entrepreneurs.
Key Features of Entrepot Trade
Transshipment Hub:
1.An entrepot serves as a point where goods are brought into a
country (or region) and then re-exported to other markets. These
regions or ports typically have excellent logistics, transportation,
and customs systems that facilitate the easy movement of goods
across borders.
2.Examples of major entrepot trade hubs include Singapore, Hong
Kong, Dubai, and Rotterdam. These ports are strategically
located and have efficient infrastructures to support the movement
of goods between different countries.
Key Features of Entrepot Trade
Minimal Processing:
• In entrepot trade, the goods are typically not processed or altered
significantly; they are merely stored temporarily or undergo basic
operations like repackaging, relabeling, or consolidating shipments
before they are re-exported to another destination.
• This contrasts with manufacturing or value-added trade, where goods
undergo significant transformation before being sold or exported.
Key Features of Entrepot Trade
Customs and Tariff Advantages:
• Many entrepot centers operate under special customs regulations,
such as free trade zones or bonded warehouses, where imported goods
can be stored without incurring customs duties or taxes until they are
re-exported.
• Some countries or regions offering entrepot trade systems may provide
tax incentives or lower tariffs to encourage businesses to use their
ports as transit points, making it financially attractive to engage in
entrepot trade.
Key Features of Entrepot Trade
Global Supply Chain Role:
• Entrepot trade is crucial in global supply chains, facilitating the
distribution of goods between manufacturers, suppliers, and consumers
across different regions.
• It is particularly important for commodities and consumer goods that
are produced in one part of the world but consumed in other regions.
• For example, goods produced in China might be sent to Dubai, where
they are re-exported to markets in Europe or Africa.
Key Features of Entrepot Trade
Profit Opportunities:
• The core idea of entrepot trade is that the entrepot country or port
earns profit margins by acting as an intermediary in the trade
process. These profits can be generated through services like
warehousing, logistics, and transportation, as well as through
economies of scale by consolidating shipments.
• Additionally, entrepreneurs and traders involved in entrepot trade can
benefit from arbitrage—buying goods at a lower price in one market
and selling them at a higher price in another market.
Exchange Rates
• Exchange rates refer to the value of one currency in
terms of another currency.
• They determine how much of one currency can be
exchanged for another and are a crucial component of
international trade, finance, and investment.
• The exchange rate plays a significant role in
determining the competitiveness of a country's goods
and services in global markets, as well as influencing
economic conditions such as inflation and interest rates.
• Exchange rates are a fundamental part of international
economics and trade.
• They fluctuate based on various factors, including
interest rates, inflation, economic performance,
government policies, and market speculation.
• Understanding exchange rates is crucial for businesses
and investors involved in international trade and
investment, as it impacts pricing, profitability, and the
competitiveness of goods and services in global
markets.
Types of Exchange Rates
1. Fixed Exchange Rate:
• In a fixed exchange rate system, the value of a currency is pegged or tied to the value of another
currency, a basket of currencies, or a commodity like gold.
• Example: The Hong Kong dollar is pegged to the US dollar at a fixed rate.
• This system provides stability in international prices but requires the central bank to hold large reserves of
foreign currency to maintain the fixed rate.
2. Floating Exchange Rate:
• A floating exchange rate is determined by market forces of supply and demand without direct
government or central bank intervention.
• Example: The US dollar, the euro, the Japanese yen, and most other major currencies operate under
floating exchange rates.
• In this system, exchange rates fluctuate continuously based on factors like inflation rates, interest rates,
and economic growth.
3. Managed or Pegged Floating Exchange Rate:
• This is a hybrid system in which a currency primarily operates under a floating exchange rate, but the
central bank occasionally intervenes in the foreign exchange market to stabilize or influence its value.
• Example: The Indian rupee is a managed float, where the Reserve Bank of India may intervene when the
currency's value fluctuates too much.
Factors Affecting Exchange Rates
1. Interest Rates:
• Interest rate differentials between countries are a significant determinant of exchange rates. When a
country raises its interest rates, it can attract foreign capital inflows, increasing demand for its currency
and thereby appreciating its exchange rate.
• Example: If the US Federal Reserve increases interest rates, foreign investors may seek US assets,
increasing demand for the US dollar.
2. Inflation Rates:
• Countries with lower inflation rates tend to see an appreciation of their currency because their goods
and services become more competitive in international markets. On the other hand, countries with higher
inflation experience depreciation of their currency.
• Example: If a country experiences high inflation, its currency loses purchasing power, which results in a
decline in the currency's value.
3. Economic Performance:
• A country's economic performance, including GDP growth, employment levels, and trade balances,
influences the value of its currency. Strong economic performance typically leads to a stronger currency,
while a weak economy leads to depreciation.
• Example: If a country has robust economic growth and a low unemployment rate, foreign investors are
likely to increase investments, boosting demand for the country's currency.
4. Market Sentiment:
• Investor perception and market sentiment play a huge role in determining currency values. If investors believe a
country’s economic future looks strong, they may demand more of that country's currency, leading to its appreciation.
• Example: Political stability and a positive outlook for future economic conditions often lead to a stronger currency.
5. Supply and Demand:
• Exchange rates are heavily influenced by the supply and demand for a currency. When demand for a currency increases, its
value rises, and when demand falls, its value decreases.
• Example: When a country’s exports increase, foreign buyers need to buy the country’s currency to pay for the goods,
increasing demand for the currency and appreciating its value.
6. Government Intervention:
• Governments or central banks may intervene in the foreign exchange market to stabilize or influence the value of their
currency, often in an attempt to combat inflation or deflation, control trade balances, or maintain economic stability.
• Example: The People's Bank of China often intervenes to manage the value of the Chinese yuan to ensure competitiveness
in trade.
7. Speculation:
• Currency traders and investors often buy and sell currencies based on expectations of future movements. This speculative
activity can cause significant short-term fluctuations in exchange rates.
• Example: If traders believe a currency will appreciate in the future, they might buy more of that currency, driving its value
up.
Effects of Exchange Rates
1. Impact on Trade Balance:
• Strong currency: When a country's currency appreciates, its exports become more expensive for
foreign buyers, which can reduce export demand. On the other hand, imports become cheaper,
which may increase imports.
• Weak currency: A weaker currency makes exports cheaper for foreign buyers, potentially increasing
demand for goods from that country. However, imports become more expensive, which can hurt
businesses that rely on foreign goods and services.
2. Impact on Inflation:
• A depreciating currency can lead to imported inflation, as the cost of foreign goods and services
rises. Conversely, an appreciating currency can reduce inflation by making imported goods cheaper.
3. Impact on Foreign Investments:
• Currency fluctuations can influence foreign direct investment (FDI) and portfolio investment. A
stable and strong currency often encourages foreign investment, while a volatile or weak currency
can deter investment due to perceived risks.
4. Impact on Travel and Tourism:
• A strong currency makes international travel cheaper for citizens, as their money goes further
abroad. Conversely, a weak currency makes foreign travel more expensive.
Globalization
• Globalization describes the growing
interdependence of the world's economies,
cultures, and populations, brought about by
cross-border trade in goods and services,
technology, and flows of investment, people,
and information
 • Globalization is a complex and
multifaceted phenomenon that has
Global reshaped the world in numerous ways.
• While it has led to increased economic
Market growth, cultural exchange, and
technological progress, it has also

and created challenges such as income

inequality, job displacement, and
environmental degradation.
Globalizati • The future of globalization will depend on

on how effectively the world can address

these challenges while maximizing the
benefits for people and nations across
the globe.
 Trade and Investment: Globalization has led to a
significant increase in international trade and
investment. Countries now exchange goods and
services more freely than before, which enhances
economic growth and opportunities for businesses.
Global supply chains have emerged, with
components of products being sourced from various
Economic Capital Flows: Investment capital flows freely
countries.
across borders. Global financial markets are

Globalizati interconnected, allowing for the movement of

capital for investment, lending, and borrowing. This
has led to greater access to capital for developing
on countries but also created exposure to global
financial crises.
Multinational Corporations: Many companies
have become multinational, establishing operations,
production facilities, and markets in multiple
countries. These corporations can take advantage of
economies of scale, reduce costs, and access new
consumer bases.
 1.Income Inequality: While globalization has lifted
many people out of poverty, it has also contributed
to increased income inequality. Wealth and benefits
are often concentrated in certain regions, industries,
or social groups, leading to disparities both within
and between countries.

Challenge 2.Job Displacement: The relocation of manufacturing

and service jobs to countries with lower labor costs

s of
can lead to job losses in higher-wage countries. This
has been a significant issue in industries such as
textiles, manufacturing, and customer service.

Globalizati 3.Environmental Degradation: The rapid growth of

global trade and industry can contribute to
environmental problems like pollution, deforestation,
on and climate change. Unsustainable practices in one
country can have global consequences.
4.Global Financial Crises: Global financial systems
are interconnected, and economic problems in one
region can quickly spread to others. The 2008
financial crisis is an example of how interconnected
economies can lead to widespread economic
disruptions.