The Contemporary World

ECONOMIC
DIMENSION OF
GLOBALIZATION
Presented by Group 5
TABLE OF CONTENTS
01 Global Economic Order in the Early Years
02 Emergence of the New Global Economic
03 International Trade and Globalization
04 International Finance and Globalization
05 International Monetary Systems

06 International Economic Institutions

07 Global Economic Instability
08 Global North and South Divide
OBJECTIVES
Know the global economy.
Describe the global economic order in the early
years.
Discuss the concepts of international trade and
international finance.
Analyze the different international monetary
systems
Identify and discuss the international economic
institutions
 Just raise your
virtual hand if you
4 PICS ONE WORD wanted to answer
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answer, you need to
sing your favorite
line/verse of your
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I__________
INSTITUTIONS
I__________AL
F____CE
INTERNATIONAL
FINANCE
I__________AL
T____
INTERNATIONAL
TRADE
I__________AL
F______AL
I________S
INTERNATIONAL
FINANCIAL
INSTITUTIONS
G____L
D____E
GLOBAL
DIVIDE
E______C
O___R
ECONOMIC
ORDER
E______CE
OF N__
E______C
O___R
EMERGENCE
OF NEW
ECONOMIC
ORDER
 W__L_
E_______C
G_____
 WORLD
ECONOMICS
GLOBAL
_____T
EXPORT
I__T______Y
T____
TRADE
U_I__
UNION
E____T
EXPORT
C_______
CURRENCY
C_______
COLLAPSE
GLOBAL
ECONOMIC
ORDER IN THE
EARLY YEARS
 IMPORTANCE OF it allows countries around
the world to obtain any
GLOBAL resource they may want,
whether or not it is
ECONOMIC ORDER produced on the home
front.
1970 1973

1997-1998 2007 & 2010

 DESPITE NUMEROUS CHALLENGES, THE PRIMARY
ARCHITECTURE OF WORLD ECONOMY REMAINS
LARGELY UNALTERED.
- FIRST, THE UNITED STATES’ SUPERPOWER STATUS.
-SECOND, THE RISE OF EMERGING POWERS WAS
EXPECTED TO REORDER THE GLOBAL ECONOMY’S
ARCHITECTURE.
-THIRD, THE NEW PROBLEMS THAT HAVE LOOMED LARGE
SINCE THE ERUPTION OF THE GLOBAL FINANCIAL
CRISIS CALLED INTO QUESTION THE LIBERAL
INTERNATIONAL ECONOMIC SYSTEM
EMERGENCE OF
NEW ECONOMIC
ORDER
 MASSIVE RECONFIGURATION OF THE WORLD
ECONOMY
1 The first major trend is that during the next
decade, 2010-2020

This will shift the balance within the G20 away from
The second of the major trends in the world
the industrialized economies of the G7 and toward economy over the next decade is that

2 China will overtake the U.S. and India will overtake

emerging economies.
Japan.
The G20 and G7 are informal governance club which
hold annual summits of head of state to discuss
issues of global importance. The final long-term developments are that
Russia will overtake Germany and

3 Brazil will overtake the U.K., leading to a New

Economic Order in 2020
 NEW
ECONOMIC
ORDER THAT
WILL
EMERGE
BY 2020
 China will displace the U.S. as

NEW ECONOMIC
the world’s leading economy.

ORDER THAT India will also rise in relative

WILL EMERGE importance in the world economy

BY 2020 Japan, Russia, Germany and

Brazil, which round out the leading
seven

economies, will all decline in size

relative to the world economy.
 The Rise of Asia will continue with
continued rapid growth in Indonesia,

NEW ECONOMIC
South Korea, and other leading
Asian economies
ORDER THAT
WILL EMERGE Japan, the United States, and other

BY 2020
industrialized countries will remain
far in

advance of China and India in terms

of per capita GDP.e
INTERNATIONAL TRADE
AND GLOBALIZATION
WORDS IN CONNECTION
TO INTERNATIONAL
TRADE OR TRADE?
WHAT IS TRADE ?

Trade is a basic economic concept

involving the buying and selling of
goods and services, with
compensation paid by a buyer to a
seller
CLASSIFICATION OF Import
INTERNATIONAL It refers to purchase of goods
TRADE from a foreign country

RECAP!!! Export
It means the sale of goods to a
foreign country.

Entrepot
When goods are imported from one
country and are exported to
another country,
DEFINITION OF TERMS:
TARIFF
A Tax or duty to be paid on a
particular class of imports and
exports
TRADE SURPLUS/ TRADE
BALANCE
A country exports exceeds its
imports
TRADE DEFICT
Imports Exceeds its Exports
FREE TRADE
when goods and services can be
bought and sold between
countries without or other
restrictions being
GROSS DOMESTIC
PRODUCT (GDP)
the standard measure of the
value added created through
the production of goods and
services in a country during a
certain period
OPPORTUNITY COST
represent the potential benefits that
an individual, investor, or business misses
out on when choosing one alternative
over another.
DEFINITION OF
International trade is an exchange
of goods or services across
INTERNATIONAL
national jurisdictions.

TRADE
According to Anatol Marad,
“International trade is a
trade between nations”.
According to Eugeworth,
“International trade means
trade between nations”.
Mercantilism
THEORETICAL
FOUNDATIONS OF
antilism INTERNATIONAL
Neomerc
TRADE

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MERCANTILISM
1500s to 1800s
Gold base
Export More Import Less
NEO MERCANTILISM
After world war II
Tariffs
Export More Import Less
ABSOLUTE ADVANTAGES
Adam Smith
Countries should focus
more on what they can
produce most efficiently
COMPARATIVE DISADVANTAGES
David Ricardo
Lower Opportunity cost
Cheap production but
HOW DOES ABSOLUTE ADVANTAGE
AND COMPARATIVE
DISADVANTAGES CONNECTS TO
INTERNATIONAL TRADE?
 Mercantilism
Win-lose THEORETICAL
FOUNDATIONS OF
a n t ilis m INTERNATIONAL
S N eo m e r c
t r a d e TRADE
U N e w w i t h

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M t e a d v a
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 Separation of Buyers and Producers
CHARACTERISTICS
OF INTERNATIONAL Foreign Currency
TRADE
Restrictions
Need for Middlemen
Risk Element
Law of Comparative Cost
Governmental Control
 IN CONNCETION TO GLOBALIZATION

Improvements in transport technology

lower manufacturing costs.

enormous variety of resources

spatial interdependencies
 ADVANTAGES AND DISADVANTAGES
ADVANTAGES
Optimal use of natural Ability to face natural
resources Stability in prices calamities

Development of the
Exchange of technical means of transport
Specialization know-how and and communication
establishment of new
industries International co-
Advantages of large- operation and
scale production Increase in efficiency understanding

 ADVANTAGES AND DISADVANTAGES

DISADVANTAGES
Impediment in the Mois-utilisation of
Development of Home Danger to International
Industries Natural Resources: Peace and world wars

Economic Dependence Import of Harmful

Goods

Political Dependence Storage of Goods:

INTERNATIONAL
FINANCE AND
GLOBALIZATION
-REIZELYN M. RAMOS-
 WHAT IS THE IDEA THAT
COMES TO YOUR MIND WHEN YOU
HEAR THE WORD
INTERNATIONAL FINANCE?

 DEFINITION OF FINANCE

- Finance is a term broadly

describing the study and
system of money,
investments, and other
financial instruments.

 Public finance deals with the income and

expenditure of public authorities. It
includes all sorts of governments
Finance can be
broadly divided Corporate finance refers to planning,
into three
developing and controlling the capital
structure of a business.
categories
Personal finance is a term that
covers managing your money as well
as saving and investing
 WHAT IS INTERNATIONAL
FINANCE
International finance is the study of
monetary interactions that transpire
between two or more countries.

Under international finance are the

interest rate, exchange rate, FDI
(foreign direct investment), FPI (foreign
portfolio investment), and currency
prevailing in the trade.
DEFINITION OF TERMS
Inflation rate- the rate of
increase in prices over a given
period time.
Interest rate- the amount
changed on top of the principle
by a leader to a borrower for
the use of assets.
Real return- is what is earned
on an investment after
accounting for taxes and
inflation.
Nominal rate- refers to the
interest rate before taking
inflation rate into account.
Real Interest Rate- an interest
rate that has been adjusted to
remove the effects of inflation to
reflect the real cost of funds to
the borrower and the real yield to
the lender or to an investor.
 THEORY OF INTERNATION FINANCE

International Fisher Effect

This theory named after the great econimist Mr. Irving Fisher.

International fisher effects ia an economic theory stating that the

expected disparity between the exchange rate of two currencies is
approximately equal to the difference between their countries'
nominal interest rate.
Real Interest Rate= Nominal interest rate- Inflation Rate
 DEFINITION OF TERMS:
Purchasing Power- Purchasing power
is a phrase to describe the number
of goods or services that money can
buy Exchange Rate- exchange rate is the
value at which one currency may be
converted into another currency.
Law of one price- The law of one price is an
economic concept that states that the price of an
identical asset or commodity will have the same
price globally, regardless of location, when certain
factors are considered.
THEORY OF INTERNATION FINANCE

Purchasing power parity

Purchasing power parity is based on the law of one price.

One of the most popular and controversial theories in
international finance is the purchasing power parity (PPP)
theory.

Purchasing power parity or PPP is a theory that aims to

determine the adjustments needed to be made in the exchange
rates of two currencies to make them at par with the
purchasing power of each other.
 Two version of Purchasing Power Parity

Price of Pizza
Absolute PPP
US = $3. 80 Italy = € 3. 45
Absolute purchasing power
parity or APPP is the basic
PPP theory, which states $3. 80
Exchange rate $/€= € 3. 45
that once two currencies
have been exchanged, a
basket of goods should Exchange rate =$1.10
have the same value. per €1
 Two version of Purchasing Power Parity

Exchange Rate
US = $1.10 Kosovo = € 1
Relative PPP
Predicted Inflation rate in upcoming year
Relative purchasing power
is the power of money US = 5% Kosovo = 0%
expressed by the number of
goods or services that one New Exchange Rate
unit can buy, and which can
be reduced by inflation. US = 1.10 + 0.055= $ 1.155 Kosovo = € 1

$1.155 = €1
 Inflation rate in US= 5%
Inflation rate in Kosovo= 3%
5%- 3%= 2%

the new change rate

$ 1.10 + 0.022= $ 1.122 per € 1

 SCOPE OF
INTERNATIONAL
FINANCE
 Scope of International Finance
International Monetary System- A set of internationally
agreed rules, conventions and supporting institutions that
facilitate international trade, cross border investment
and generally the reallocation of capital between states
that have different currencies.
International Financial System- The financial system, is
the system that allows the transfer of money between
savers (and investors) and borrowers. A financial
systemcan operate on a global, regional or firm specific
level.
 Scope of International Finance
Foreign Exchange Market- the trading of one currency
for another currency.
Currency Convertibility- The ease with which a
country's currency can be converted into gold or
another currency.
FOUR FACTORS OF
INTERNATIONAL
FINANCE IN
GLOBALIZATION
ADVANCEMENTS IN
INFORMATION AND
COMMUNICATION
TECHNOLOGIES
GLOBALIZATION
OF NATIONAL
ECONOMIES
 LIBERALIZATION OF
NATIONAL
FINANCIAL AND
CAPITAL MARKETS
COMPETITION AMONG
INTERMEDIARY
SERVICES PROVIDERS
 ADVANTAGES AND
DISADVANTAGES
OF INTERNATIONAL
FINANCE

 ADVANTAGES AND DISADVANTAGES

OF INTERNATIONAL FINANCE

ADVANTAGES DISADVANTAGES
Promotion Political turmoil
Better banking Depending on other
system countries
More Equality Credit risk

 WHAT IS
INTERNATIONAL
FINANCE AND
INSTITUTIONS
The private sector is recognized as a
critical stakeholder and partner in
economic development, a provider of
income, jobs, goods, and services to
enhance People's lives and help them
escape poverty.
FOUR EXAMPLES 01 World trade
organization
OF 02 World bank
INTERNATIONAL 03 International monetary
INSTITUTIONS fund
04 The Bretton Woods
system
SUMMARIZATION TIME!