• Prof.

MARVIC
CARRASCO BENAVIDES
• At the end of the session, the student will learn about
key concepts in economics and the impact in
international business.
• What is economics?

• It is not about money, it is about people

(social science), it is about how they earn
a living and hoy they spend their money.

• Economic theories are often presented in

mathematical models; however, that
complex math is nothing more than
stories of people translated into the
mathematical language.

• The mathematical models attempts to

predict human behavior
• Individuals are hard to predict; however, as a
society (group) we are usually predictable.
For instance, when you go to the market there
will be eggs, therefore, stores can predict the
demand to buy from their suppliers.

• The invisible hand of the market (Adam

Smith)

• In the preceding example who make sure that

there is always available products in the
market to all people?

• How self interest makes the market work?

• There are 2 key
fundamentals in
economy:

• People respond to
incentives

• Every sell is a
purchase

Economics has no moral

(not positive nor
negative)
Evolution of global trade

• What happens
when there is not
enough money
supply?
Evolution of global trade

Absolute Advantage

Goods USA FRANCE

AIRPLANES 15 10

Which country has the absolute

advantage producing airplanes?
Evolution of global trade

Comparative Advantage
Goods (MAX) PLANES SHIPS
USA 20 2
FRANCE 12 2

Opp. Cost PLANES SHIPS

USA 1P costs 1/10S 1S costs 10P
FRANCE 1P costs 1/6S 1S costs 6P
Which country has the comparative advantage in producing planes?
Which country has the comparative advantage in producing ships?
• Central banks conduct monetary policy by adjusting the supply of money,
generally through open market operations.
• The first prototypes for modern central banks were the Bank of England and the
Swedish Riksbank, which date back to the 17th century.
• Usually, they are independent. But why the are independent?
• Central bank sets requirements of cash reserves which banks must maintain on
their deposits.
• A central bank can be a lender of last resort to troubled financial institutions and
even governments.
• In practical terms the central bank aims to get unemployment as low as it get
without overheating the economy (inflation)
• Usually, they are independent. But why the are
independent?
• Central bank sets requirements of cash reserves
which banks must maintain on their deposits.
• A central bank can be a lender of last resort to
troubled financial institutions and even
governments.
• They usually influence the supply of money in the
economy by issuing currency and setting interest
rates on loans and bonds.
• Is an economic indicator that measures the monetary value of goods and
services produced within a country's borders in a given time period.
• The value of everything that is produced within the country
• The value of everything that is purchased within the country plus
that country’s net exports to other countries
• The income of all the individuals and businesses within the
country.
These three values are the same because everything that we purchase
must be first produced and then sold. Then, through the selling of products
and services, we earn our income. Therefore, total production, total
purchases, and total income for the whole country are the same.
• Nominal GDP: In current values of currency
• Real GDP: adjusted for inflation taking in account a based period.
• GDP per capita: GDP divided by total population

Main drivers of GDP:

• Domestic demand (personal consumption expenditure)
• Private investment and government investment
• Exports and imports (net exports)
• Inflation is the rate at which prices for
goods and services rise.
• The rate at which purchasing power
drops can be reflected in the average
price increase of a basket of selected
goods.
• GDP per capita: GDP divided by total
population
• CPI: measures the overall change in
consumer prices based on a
representative basket of goods and
services over time.
• Also called FX or Forex.
• It is a OTC (over the counter) market where you can swap one currency for
other.
• This is the biggest and the most liquid market around the globe with total
operation over trillion dollars every day.
• The prices are listed in pairs such as PEN/USD
or USD/EUR.
• If the exchange is 1.5 for USD/PEN what does it
mean?
• OTC: securities traded without being listed on an
exchange.
• For centuries currency was related to
gold.
• In 1944 as world war II was becoming to
end, the Bretton Woods agreement was
born to fix currencies of the world to US
dollar.
• Countries agreed to fix their currency to
the US dollar and the US dollar was tied
to gold. There was a parity of 1 ounce to
USD 35.
• For countries was possible to convert
back US dollars to gold.
• In 1971 US president Nixon stop the
convertibility and from that moment the US
dollar and therefore other currencies began to
be fiat currency.
• That led to a foreign exchange market.
• Modern money is backed by nothing, it has
value due to confidence of the economies and
expectations of growth.
• In the message it was said that the decision
was temporally.
DEFINITION
DEFINITION

• Unemployed is
a person who
has no job for
the last 4
weeks and is
seeking
actively for a
job for the las 4
weeks
DEFINITION

• Is the difference between the monetary value of exports

and imports in an economy for a given time period.

• Balance of trade is one of the important indicators

• Risk premium: is the minimum return a person is willing
to accept as compensation for taking a given risk in his
investment.
• Country Risk: The emerging markets bond index (EMBI)
tracks the performance of emerging market bonds and
was first published by investment bank JP Morgan.
• It tracks the difference in yield between a country 30 year
bond against 30 year t-bonds (in theory US bonds
represents no risk)
• Inflation is a monetary phenomenon
• What is the role of central banks
• How interest rate affects inflation, GDP and unemployment
• Gold standard and fiat currency
• Premium risk and EMBI