BUS - 510

International Business

Assignment
Midterm Evaluation

Prepared for

K.M. Jamshed uz Zaman

Adjunct Professor
Graduate School of Management

BRAC University

Prepared by

Maliha Farzana

ID: 20164092
 Assignment 1

Accounts of BOP and their impacts on the economy

Balance Of Payment (BOP)

The balance of payments (BOP) is a mechanism used by governments to keep track of all
financial monetary transactions over a given time span. Normally, each quarter and calendar
year, is measured for BOPs.

The BOP accounts for the total amount of money flowing in and out of a country for all
businesses, both private and governmental. When a country has earned currency, it is known as a
loan, and the exchange is considered debit, if it has paid or provided money.

It can, in theory, be zero so as to balance assets (credits) and debits; however, that is seldom the
case in practice. As a consequence, the BOP will inform an outsider whether a country has a
deficit or a surplus, as well as where the anomalies arise.

The balance of payments (BOP) is a summary of all overseas financial transfers carried out by a
country's inhabitants.

The BOP is split into three sections: current account, capital account, and financial account.

The current account is used to monitor the movement of goods and services into and out of a
region.

Any foreign capital transactions are reported in the capital account.

Foreign monetary flows related to companies, property development, shares, and stocks are
registered in the financial account.

The current account can be weighed against the total capital and financial statements, resulting in
a zero BOP, but this rarely happens.

The current account, capital account, and financial account are the three major categories of the
BOP. There are sub-divisions within these three groups, each of which accounts for a particular
form of international monetary exchange.
 Figure 1: Balance of Payment

The Current Account

The current account is an accounting record that reveals how much money

The current account is used to monitor the movement of goods and services (education, medical,
tourism, religious tourism) into and out of a region. Earnings from public and private
contributions are also paid into the current account.

Credits and debits on retail trading, which covers products such as raw materials and finished
goods that are purchased, sold, or given away, are recorded in the current account (possibly in
the form of aid). Receipts from providers are referred to as services.

The Current Account is a financial statement that shows how much money

The current account is used to monitor the movement of goods and services into and out of a
region. Earnings from public and private contributions are also deposited into the current
account.
 Figure 2: Components of Current Account

Credits and debits on goods exchange, which covers products such as raw materials and finished
goods that are purchased, sold, or given away, are reported in the current account (possibly in the
form of aid). Tourism, shipping (such as the tax levied in Egypt when a ship goes through the
Suez Canal), manufacturing, corporate support payments (from attorneys or management
consulting, for example), and revenues from patents and copyrights are all examples of services.

Combined, products and services form the balance of trade in a nation (BOT). The BOT
normally constitutes the greatest proportion of the balance of payments of a nation as it
constitutes overall imports and exports. If a country has a trade deficit balance, it imports more
than its exports, while it exports more than it imports if it has a trade surplus balance.

In the current account too are reported profits from income-generating investments, such as
stocks (in the form of dividend). Unilateral transactions are the last part of the current account.
There are often workers' payments and are wages returned to the home country of a national who
works overseas as well as in foreign countries. There are mainly employee remittances, which
are earnings sent back to a country's home country from an individual working abroad, as well as
directly earned international assistance. Remittance can be of two type one is transaction and the
other one is transfer. Transaction is when both parties are giving something to each other, and
transfer is when you are just giving away without any return.

The Capital/Kapital Account:

The Capital Account is a kind of account that is used to both foreign capital transactions are
reported in the capital account. This applies to the purchase or selling of non-financial assets
(such as land) and non-generated assets (such as a diamond mine) that are needed for production
but have not yet been produced.

Figure 2: Components of Capital Account

The capital account is divided into monetary flows arising from debt forgiveness, the movement
of commodities and financial assets by migrants leaving or joining a region, the transfer of
ownership of fixed assets (assets such as machinery used in the manufacturing process to
produce income), and the transfer of funds gained to the selling or acquisition of fixed assets.
This capital account is divided into currencies that are connected to debt forgiveness, the transfer
of goods and financial assets by migrants leaving or coming into a state, the transfer of
ownership of fixed assets (e.g. assets used for income generation during the production process),
the transfer of money received to the sale or acquisition of fixed assets, gift and inheritance
taxes.
The Financial Account

Foreign monetary flows related to companies, real estate, shares, and stocks are documented in
the financial account. Government-owned funds, such as foreign savings, gold, private assets
held overseas, and direct foreign investment, are also included. Foreigners' assets, both private
and public, are reported in the financial account.

Impacts of BOP

To start with, the BOP statement provides details on the market for and availability of the
nation's currency. The trading data indicates if the country's currency is appreciating or
depreciating in contrast to other currencies. The country's BOP then assesses its ability to be a
positive economically. Furthermore, a country's BOP reflects its place in global economic
development.

Balance of Payment Deficit:

 The country imports more goods, services, and capital than it exports.
 It must borrow from other countries to pay for its imports.
 In the short term this fuel economic growth.
 In the long term, the country will have to go into debt to pay for consumption.

Balance of Payment Surplus:

 The country exports more than it imports.

 Country provides enough capital to pay for all domestic production.
 A surplus boosts all economic growth in the short term.
 In the long term it becomes too dependent on export driven growth.

A nation may detect patterns that are helpful or detrimental to its economy and take effective
action by carefully analyzing its BOP statement as well as its components.
 Aiignment 3

Globalization is at stake in recent years

Globalization:

Globalization is a concept that all the countries will trade with each other without any barriers
and restriction on their business, by doing so all the countries will grow together.

COVID- 19 The pandemic of the century:

The emergence of populist nationalism, along with the Great Recession and the COVID-19
pandemic, has turned these claims upside down, emphasizing the risks rather than the advantages
of efficient market linkages (Rodrik, 2018a). Most obviously, globalization's widespread and
quick international travel acted as a perfect platform for the Coronavirus's rapid spread: it
became global in just a few months after being isolated in China.

The global pandemic acts as a warning that, at the end of the day, the bulk of economic activity
happens within national boundaries. It has once again concentrated focus on the nodes,
highlighting the risks of dynamic global supply chains through which each node can become a
"choke point," threatening to bring the whole network to a halt. It has also highlighted the very
real pitfalls of enabling efficiency to push the consolidation of vital products and materials into a
single market; the "destruction of official historical factories" is no longer considered a symbol
of success.

Although globalization has long been recognised as a product of both advantages and costs, it
was usually believed that the former is much greater than the latter, and that the social and
distributional consequences could be tackled nationwide. By the end of the 20th century, though,
there was a growing consensus that trade only had moderate impacts on income distribution
(Autor, Dorn, & Hanson, 2003; Krugman, 2008). In what at the moment seemed to represent a
rapid change of attitude, globalization became a societal, political and economic threat rather
than a success. ( Kobrin, 2017.)

This was evident in a recent New York Times report, which described recent decades of
globalization as "an underregulated, blinkered form of interconnection that has left societies
vulnerable to a potent array of threats" (Goodman, 2020: B4). COVID-19 revealed one of the
most significant threats: the infection's rapid dissemination across the world through the complex
network of international air travel (and cruises). On January 11, 2020, the World Health
Organisation (WHO) first announced the latest virus in China; by early February, it had spread to
seven Asian countries, five European countries, and the United States and Canada. On March 10,
the WHO declared this a pandemic, with 3.8 million worldwide cases and 260 thousand deaths
by May 7. (World Health Organization, 2020).
Globalization was an abstraction for much of the world's people for most of the 20th and the first
10 years of the 21st century. Economic dislocations caused by globalization – but very real for
those who are experiencing the repercussions – were restricted particularly when economies
were high. In the last decade, this has improved drastically. The detrimental economic effect of
globalisation, which had a strong bearing on the working class of many industrial nations,
became much wider as a result of the Great Recession.

In other words, large-scale displacement and the COVID pandemic have been a major challenge
for globalization. The waves of migrant leaving the zone.

That said, the COVID pandemic and massive migration have been a major danger to
globalization. Waves of refugees leaving conflict zones like Syria, as well as abject poverty and
brutality in Africa and Latin America, were noticeable and instant, and xenophobic forces used
them to turn vast numbers of residents in many countries against immigration and globalization
in general. Globalization was no longer abstract: it was waves of refugees turning up on
Greece beaches or President Trump threatening to storm America's southern frontier with
"armies of migrants."

The pandemic of COVID was the last nail in the coffin. Globalization and foreign travel were
linked to a very real and obvious threat: serious sickness and death. For the vast majority of the
world's people, globalization is no longer a distant term. In nearly every region, it is synonymous
with negative connotations as a medium for the transmission of a dangerous and potentially
deadly disease, as well as the economic instability that comes with it.

Overspecialization and Concentration of Production

The use of the digital revolution in science and development has resulted in a significant rise in
the pace of invention as well as the flow of a very large variety of inexpensive goods to
customers all over the world. In most developing nations, a wide range of people had access to
"the various goods of the whole planet" in remarkably limited time and at a reasonable price.

That came at a cost in terms of job losses, especially in the industrial sector of developing
countries, a cost that became very clear with the Global Depression and inevitably led to the rise
of nationalist nationalism in many countries. This was a price in the loss of employment,
especially in the manufacturing sector of developing countries, that became very apparent in
several countries with the Great Recession and definitely played an important role in the upsurge
in populist nationalism. (Production technology advances are also relevant.) However, the
COVID-19 pandemic has shown that space neglect – the geography - presents very serious risks
independent of the time simultaneity. The over-specialized or concentration of technical
expertise and/or capability in a nation or area and the dependence on diverse worldwide supply
chains was troublesome.

Surprisingly, some of the first signs of overspecialization's risks came from a lack of supplies
and medications available to cure the infection. China manufactured half of the world's medical
masks, and only two firms control the manufacturing of reagents, a part of test kits (Farrell &
Newman, 2020). Since plants in Places like china were shut down, the supply of these critical
supplies was seriously disrupted, and the capacity to move production locations was severely
limited.

Similarly, India has been the world's largest producer of prescription medicines, with China
supplying 70% of the active pharmaceutical ingredients (API).

Likewise, India is the largest provider of generic medicinal products in the world and relies on
China for its medications to account for 70% of active pharmaceutical ingredients (APIs). In
March 2020, India limited the export of 26 of these APIs and the drugs produced from them so
as to ensure that the domestic market is adequately supplied in the face of the COVID pandemic.
Europe was defined as "panicking" in the press about the potential effects on stocks of essential
medicine and the US Food and Drug Administration noted that almost a quarter of Indian
medicines were imported in 2018. (Dasgupta & Burger, 2020).

Another COVID irony is that, at a time when most of mankind is limited to their homes, the
lockout in Malaysia has led to fears of a "devastating condom shortage," when a single plant in
that country manufactures 20% of the world's condoms (France 24, 2020).

As the pandemic escalated, countries went into "lockdown" mode, manufacturing was
interrupted, and the trade-off between productivity (lower costs and technical specialization) and
supply stability became apparent as shortages, or fears of shortages, emerged. Although the
advantages of lower goods costs are common, as with many other aspects of foreign trade, they
are not necessarily apparent.

As the pandemic spread, countries were 'closed,' production was interrupted and commerce was
apparent as deficits or risks of scarcity between productivity (lower costs and technical
specialization) and security of supply. The advantages from reduced cost of imports are not
necessarily apparent, as with a large number of problems relating to foreign trade, while the cost
– employment reductions or in this case the lack of essential products – affects particular sectors
and customers more specifically.
Chaina and USA:

Just a few decades ago, many, including some opponents, considered the globalization to be an
unavoidable, imparable power. "The reluctance to globalize was like denying a sunrise," wrote
American journalist George Packer. In terms of services, money and ideas, globalization could
occur, making it famously vain; but what it most commonly meant was cheaper for cross-border
trading – something that everyone thought was a clear thing at that time. This also meant that
manufacturing moved from wealthy, where work was pricey, to developing countries where
work was cheaper. People in the rich countries should accept.

In fact, this also meant that manufacturing would migrate from wealthy, expensive countries to
developing countries with cheaper employment. People will either have to tolerate smaller
incomes or risk their employment in wealthy countries. However, regardless of what, the
products that they used to make are now imported and much less costly. And new and qualified
work could hit the unemployed (if they got the requisite training). The majority on the merits of
globalization was maintained with little care that political implications could occur by
mainstream economists and policymakers.

As countries seek global competitive and geopolitical advantage, the US has been stronger
economically than China, preferring more favorable trading agreements.

The US Government is worried about and has attempted to deal with the bilateral trade deficit
between the two countries by taxing tariffs. American firms raised more general questions, such
as their perception of China's over-protection of governmental undertakings; favoritism for
domestic undertakings by Chinese licensing and regulatory processes; international investment
restrictions; heightened regulative scrutiny and violations of intellectual property.

In the middle of 2018, the US placed tariffs on Chinese imports valued at US$250b and alerted
Chinese products to tariffs valued at US$300b. China reacted by US$110b tariffs and indicated
that it might take additional actions to further restrict US businesses in China.

It is not a straightforward trade conflict as recent events say. China' s initiative to improve and
extend the use of sensitive technology and its arguments about cyber threats stemming from
China has raised questions about what it considers as facets of national security, especially
China's greater presence in Asia.

The US government has identified a variety of Chinese technology firms in the blacklist to fight
China's increasing cyber influence and exerts political pressure on conventional allies to ensure
that their 5G network is not opened up. A new measure, adopted in November by the US
Commerce Department, would allow US government companies to limit imports from their
domestic supply chain networks and use the technologies of foreign countries.
In exchange, if China wishes to reciprocate, it has a range of options open. For example, it might
take similar measures against American technology companies in its own market or use its close
dominance in the world supply of critical rare-earth minerals that are crucial for the technology
industries in United states.

Image Source:

https://byjus.com/commerce/the-balance-of-payments/

http://www.equipoise-iima.com/resource/balance-of-payments

Reference:

What Is the Balance of Payments? (2018). Investopedia.

https://www.investopedia.com/insights/what-is-the-balance-of-payments/

Kobrin, S. J. (2020, July 6). How globalization became a thing that goes bump in the night.

Journal of International Business Policy.

https://link.springer.com/article/10.1057/s42214-020-00060-y?

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Saval, N. (2020, February 3). Globalisation: the rise and fall of an idea that swept the world.

The Guardian. https://www.theguardian.com/world/2017/jul/14/globalisation-the-rise-

and-fall-of-an-idea-that-swept-the-world

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a-new-generation