INTERNATIONAL TRADE WTO (World Trade Organization) expanded the definition of trade to
include not just goods but services, and to create rules governing
Why can't countries just make their own phones, shoes or
tunafish and provide more jobs in business domestically?
Before the 19th century, most European countries tried to do just that
prioritizing self-sufficiency in a system called mercantilism.
Mercantilism - aimed to maximize exports, minimize imports, and
increase the country's supply of gold. This system led to strict tariffs, or
taxes on imports, as a way to not only discourage bringing in goods
from abroad, but profit off it.
Mercantilism created barriers to international trade. Countries aim to
produce as much as possible on their own, including things they weren't
able to make efficiently.
In the late 18th century, so-called classical economists (Jean-
Baptiste Say, David Ricardo, Adam Smith) refuted these long-held
beliefs, championing the idea that societies should trade with one
another to be more successful because of comparative advantage.
The idea that when countries focus on making things, they're
comparatively good at an import, the rest everyone benefits.
This is known as specialization, and when countries don't have to
spend time and resources producing textiles or wine, for example,
there's more room for them to innovate and create entirely new
products. These classical economists argued that it was
counterproductive to judge a country's power on how much gold it could
amass.
Today, we measure countries in economies on productivity their ability
to utilize their limited resources for maximum value. This metric is
known as Gross Domestic Product, which totals the sum of all the
final goods and services a country produces in a year.
Measuring GDP instead of just gold helped boost trade and grow
economies.
And after World War Two, the newly formed United Nations created the
General Agreement on Tariffs and Trade (GATT) this agreement,
substantially lowered trade barriers like tariffs and created rules to
dictate how countries should trade freely.
intellectual property such as copyright or a patent.
The WTO is also an arena for countries to hammer out the rules and
regulations of international trade and lodge complaints if they believe
those rules aren't followed.
In 1994, the North American Free Trade Agreement, known as
NAFTA, was designed to facilitate more trade among the United
States, Mexico and Canada. NAFTA provided a blueprint for similar
types of agreements between other countries.
INTERNATIONAL FINANCE
The word “International” means involving more than one country.
The word “Finance” refers to the management of money, or the money
belonging to a person, group, or organization.
INTERNATIONAL FINANCE - the study of monetary interactions that
occur between two or more countries.
Some of the prominent international finance organizations are the
World Bank, the International Finance Corporation (IFC), the
International Monetary Fund (IMF), and the National Bureau of
Economic Research (NBER).
The three Key Forms of Finance are:
1. Personal Finance - This is the mechanism by which personal
financial activities such as income generation, expenditure, saving,
investing, and security are organized and controlled.
2. Corporate Finance - As the name implies “Corporate” - is the
finance branch that deals with how companies deal with sources of
financing, structuring money, and decisions on investment.
3. Public or Government Finance - Thus is the analysis of finance
connected with government bodies. The role of government revenue
and expenditure in the economy revolves around it.
What is the main reason for International Finance?
International finance enables one to compare the exchange of
currencies and also to evaluate the cost of doing business
internationally. In dealing with cross-border transactions, it facilitates
multinational companies by describing the different financial factors
involved in these transactions.
International finance arises due to the fact that the presence of nations
impacts the economic operations of corporations, governments, and
organizations.
The symbolization of international finance.
International finance is an important tool for discovering exchange
rates, matching inflation rates, understanding how to invest in
international debt securities, evaluating other countries ‘economic
status, and judging global markets.
In international finance, exchange rates are very important as they help
us assess the relative values of currencies. In measuring these prices,
international finance helps. In making foreign investment decisions,
different economic factors support.
Economic conditions in economies help decide whether or not the
money of investors in foreign debt securities is secure.
International finance agencies, such as the IMF, the World Bank, etc.,
play a role as mediators in resolving conflicts over international finance.
International Financial Reporting Standards scheme also aims to
save money by complying with the reporting regulations for a single
accounting standard.
International finance is contributing to healthy competition and,
ultimately, a more efficient banking system. It offers information on
critical investment areas and contributes to an efficient allocation of
resources.
International Finance supports domestic investment and development
by importing money.
Worldwide access to capital markets allows a nation to borrow during
challenging times and to lend during good times.
BRETTON WOODS SYSTEM
44 countries sent delegates to a conference held in Bretton Woods
New Hampshire as of the 1st of July 1944.
International Monetary Fund which was supposed to lend money to
countries that are in trouble and cannot attract financing from other
sources.
International Bank for Reconstruction and Development which is
now called the World Bank and was supposed to help less developed
country grow. To lend money to ravaged countries.
Bretton Woods system didn't survive because the United States
kept running deficits to fund various projects and therefore the amount
of dollars in existence kept increasing while the gold reserves of the
u.s. kept shrinking as more countries demanded gold in exchange for
their dollars as such on the 15th of August 1971 Nixon officially
announced that dollars would no longer be convertible to gold.
The purpose was to create a system which avoided:
- World War 2
- Great Depression 2
The IMF and Post war Economic Crisis
- the end of the fixed-rate exchange system in 1971
- the oil shocks of the mid-1970s
- the international debt crisis of the 1980s
- the economic fallout following the collapse of the Soviet Union
after 1989
- the international economic crisis from 2007 onwards
3 AREAS OF RESPONSIBILITY:
surveillance - observing global trends and advising or
macroeconomic issues
technical assistance - assisting low and middle-income countries in
managing their economies
lending – providing support to help countries avoid balance of
payment deficit and potential bankruptcy
In conclusion the Bretton Woods institutions have had a huge influence
on the global economy but they have not been without their
controversies however at the end of 2011 as national economies
struggle the role of these supranational economic organizations is only
going to become more important.