LECTURE 1: CONCEPTS, THEORIES,
AND PRINCIPLES OF BUSINESS &
GLOBALIZATION
What is Globalization?
The word globalization is bandied about in the
news media and elsewhere, often without
precise definition. We can define globalization,
though, as the growing interdependence not
only of the world’s economies but also of
populations and cultures. This interdependence
is created by cross-border trade, the transfer of
technological processes, and flow of investment
capital, information, skills, resources, and labor.
It can more narrowly refer to the economic
partnerships that nations have forged to facilitate
the international flow of goods and services.
Globalization refers to the spread of the flow of
financial products, goods, technology,
information, and jobs across national borders
and cultures. In economic terms, it describes an
interdependence of nations around the globe
fostered through free trade.
 Globalization is the spread of products,
technology, information, and jobs across
nations.
 Corporations in developed nations can
gain a competitive edge through
globalization.
 Developing countries also benefit
through globalization as they tend to be
more cost-effective and therefore attract
jobs.
 The benefits of globalization have been
questioned as the positive effects are
not necessarily distributed equally.
 One clear result of globalization is that
an economic downturn in one country
can create a domino effect through its
trade partners.
Globalization is a social, cultural, political, and
legal phenomenon.
 Socially, it leads to greater interaction
among various populations.
 Culturally, globalization represents the
exchange of ideas, values, and artistic
expression among cultures.
 Globalization also represents a trend
toward the development of a single
world culture.
 Politically, globalization has shifted
attention to intergovernmental
organizations like the United
Nations (UN) and the World Trade
Organization (WTO).
 Legally, globalization has altered how
international law is created and
enforced.
All theories of globalization have been put
hereunder in eight categories: liberalism,
political realism, Marxism, constructivism,
postmodernism, feminism, Trans-formationalism
and eclecticism. Each one of them carries
several variations.
1. Theory of Liberalism:
Liberalism sees the process of globalization as
market-led extension of modernization. At the
most elementary level, it is a result of ‘natural’
human desires for economic welfare and
political liberty. As such, trans planetary
connectivity is derived from human drives to
maximize material well-being and to exercise
basic freedoms. These forces eventually interlink
humanity across the planet.
2. Theory of Political Realism:
Advocates of this theory are interested in
questions of state power, the pursuit of national
interest, and conflict between states. According
to them states are inherently acquisitive and
self-serving, and heading for inevitable
competition of power. Some of the scholars
stand for a balance of power, where any attempt
by one state to achieve world dominance is
countered by collective resistance from other
states.

3. Theory of Marxism:
Marxism is principally concerned with modes of
production, social exploitation through unjust
distribution, and social emancipation through the
transcendence of capitalism. Marx himself
anticipated the growth of globality that ‘capital by
its nature drives beyond every spatial barrier to
conquer the whole earth for its market’.
Accordingly, to Marxists, globalization happens
because trans-world connectivity enhances
opportunities of profit-making and surplus
accumulation.
4. Theory of Constructivism:
Globalization has also arisen because of the
way that people have mentally constructed the
social world with particular symbols, language,
images and interpretation. It is the result of
particular forms and dynamics of consciousness.
Patterns of production and governance are
second-order structures that derive from deeper
cultural and socio-psychological forces. Such
accounts of globalization have come from the
fields of Anthropology, Humanities, Media of
Studies and Sociology.
5. Theory of Postmodernism:
Some other ideational perspectives of
globalization highlight the significance of
structural power in the construction of identities,
norms and knowledge. They all are grouped
under the label of ‘postmodernism’. They too, as
Michel Foucault does strive to understand
society in terms of knowledge power: power
structures shape knowledge. Certain knowledge
structures support certain power hierarchies.
6. Theory of Feminism:
It puts emphasis on social construction of
masculinity and femininity. All other theories
have identified the dynamics behind the rise of
trans-planetary and supra-territorial connectivity
in technology, state, capital, identity and the like.
Biological sex is held to mould the overall social
order and shape significantly the course of
history, presently globality. Their main concern
lies behind the status of women, particularly
their structural subordination to men. Women
have tended to be marginalized, silenced and
violated in global communication.
7. Theory of Trans-formationalism:
This theory has been expounded by David Held
and his colleagues. Accordingly, the term
‘globalization’ reflects increased
interconnectedness in political, economic and
cultural matters across the world creating a
“shared social space”. Given this
interconnectedness, globalization may be
defined as “a process (or set of processes)
which embodies a transformation in the spatial
organization of social relations and transactions,
expressed in transcontinental or interregional
flows and networks of activity, interaction and
power.”
8. Theory of Eclecticism:
Each one of the above six ideal-type of social
theories of globalization highlights certain forces
that contribute to its growth. They put emphasis
on technology and institution building, national
interest and inter-state competition, capital
accumulation and class struggle, identity and
knowledge construction, rationalism and cultural
imperialism, and masculinize and subordination
of women. Jan Art Scholte synthesizes them as
forces of production, governance, identity, and
knowledge.
LECTURE 2: OVERVIEW OF TRADE
THEORY
International trade acts as a major contributing
factor in global economic activity and a catalyst
of economic growth in developing as well as
developed countries. Differences in various
conditions, like resource availability, natural
climatic conditions, cost of production, etc., act
as the motive behind trade between the
countries. International trade has made it all
possible and has provided a large number of
employment opportunities as well as several
goods and services for the consumer. Not just
this, it has been a major reason for the rising
living standards of people all over the globe.
International trade has been a part of human
civilization for a very long time; however, the
past few decades have seen rapid development
in cross-border trading. Imports and exports
have largely contributed to the growth of GDP,
and the credit for the same goes to imports and
exports.
What Is International Trade?
International trade theories are simply different
theories to explain international trade. Trade is
the concept of exchanging goods and services
between two people or entities. International
trade is then the concept of this exchange
between people or entities in two different
countries.
People or entities trade because they believe
that they benefit from the exchange. They may
need or want the goods or services. While at the
surface, this may sound very simple, there is a
great deal of theory, policy, and business
strategy that constitutes international trade.
A. Mercantilism
The Mercantilism theory is the first classical
country-based theory, which was propounded
around the 17-18th century. This theory has
been one of the most talked about and debated
theories. The country focused on the motto that,
on a priority basis, it must look after its own
welfare and therefore, expand exports and
discourage imports. It stated that an attempt
should be made to ensure that only the
necessary raw materials are imported and
nothing else. The theory also propounded the
view that the first thing a nation must focus on is
the accumulation of wealth in the form of gold
and silver, thus, strengthening the treasure of
the nation.
To put it simply, it can be stated that the classical
economists behind the theory of Mercantilism
firmly believed that a country’s wealth and
financial standing are largely demonstrated by
the amount of gold and silver it holds. Hence,
economists believe that it is best to increase the
reserve of precious metals to maintain a wealthy
status. For this theory to work, the aim to be
fulfilled was that a country must produce goods
in such a large quantity that it exports more and
should be less dependent on buying goods and
other materials from others, thereby strongly
encouraging exports and strictly discouraging
imports.
B. Theory of the Absolute Advantage
In 1776, the economist Adam Smith criticized
the theory of mercantilism in his publication,
“The Wealth of Nations”, and propounded the
theory of Absolute advantage. Smith firmly
believed that economic growth in reference to
international trade firmly depends on
specialization and division of labor.
Specialization ensures higher productivity,
thereby increasing the standard of living of the
people of the country. He proposed that the
division of labor in small markets would not cater
for specialization, which would otherwise
become easy in the case of larger markets. This
increase in size fostered a more refined
specialization and thus increased productivity all
around the globe.
Smith’s theory proposes that governments
should not try to regulate trade between
countries, nor should they restrict global trade.
His theory also encapsulated the consequences
of the involvement and restraint of the
government in free trade. Also, he firmly
believed that it is the standard of living of the
residents of a country that should determine the
country’s wealth and the amount of gold and
silver that a country’s treasure has. He states
that trading should depend on market factors
and not the government’s will.
C. Theory of Comparative Advantage
The theory of comparative advantage flourished
in the 19th century and was propounded by
David Ricardo. This theory strengthened the
understanding of the nature of trade and
acknowledges its benefits. The theory suggests
that it is better if a country exports goods in
which its relative cost advantage is greater than
its absolute cost advantage when compared with
other countries.
What Ricardo proposed is that even though a
country may efficiently produce goods, it may
still import them from another country if a
relative advantage lies therein. Similar is the
case with export, even if a country is not very
efficient in certain goods from other countries, it
may still export that product to other countries.
This theory basically encourages trade that is
mutually beneficial.
D. Heckscher-Ohlin Theory
The theories founded by Smith and Ricardo
were not efficient enough for the countries, as
they could not help the countries determine
which of the products would benefit the country.
The theory of Absolute Advantage and
Comparative Advantage supported the idea of
how a free and open market would help
countries determine which products could be
efficiently produced by the country. However, the
theory proposed by Heckscher and Ohlin dealt
with the concept of comparative advantage that
a country can gain by producing products that
make use of the factors that are present in
abundance in the country. The main basis of
their theory is on a country’s production factors
like land, labor, capital, etc. They proposed that
the approximate cost of any factor of resource is
directly related to its demand and supply.
Factors which are present in abundance as
compared to demand will be available at a
cheaper cost, and factors which are in great
demand and less availability will be expensive.
They proposed that countries produce goods
and export the ones for which the resources
required in their production are available in a
much greater quantity. Contrary to this, countries
will import goods whose raw materials are in
shorter supply in their own country as compared
to the one from which they are importing.
E. Product-life-cycle Theory
This theory was propounded by Raymond
Vernon, a business professor at Harvard
Business School, in the 1960s. The theory that
originated in the field of marketing proposed that
a product life cycle has three stages, namely,
new product, maturing product, and
standardized product. The theory has a
presumption that the production of a new
product will completely arise in the country
where it was invented. This theory, up to a good
extent, helps in explaining the sudden rise and
dominance of the United States in
manufacturing. This theory also explained the
stages of computers, from being in the new
product stage in the 1970s and thereby entering
into their maturing stage in the 1980s and
1990s. In today’s scenario, computers are in a
standardized stage and are mostly
manufactured in low-cost countries in Asia.
However, this theory has not been able to
explain the current trading pattern where
products are being invented and manufactured
in almost all parts of the world.
F. New Trade Theory
New trade theory (NTT) refers to modern
economic theory that explains international trade
based on economies of scale, network effects,
and first-mover advantage. It helps decipher the
main reason behind globalization and intensive
trading between similar economies. In addition,
it paves the way for the government’s role in the
industrialization of a country
POLITICAL ECONOMY OF
INTERNATIONAL INSTRUMENTS OF
TRADE POLICY
What is The Political Reality of International
Trade?
 Free trade occurs when governments do
not attempt to restrict what citizens can
buy from another country or what they
can sell from another country.
 While many nations are nominally
committed to free trade, they tend to
intervene in international trade to protect
the interests of politically important
groups.
Why do Government intervene?
There are two types of arguments for
government intervention: political & economic.
 Political arguments are concerned with
protecting the interests of certain groups
within a nation (normally producers),
often at the expense of other groups
(normally consumers).
 Economic arguments are typically
concerned with boosting the overall
wealth of a nation (to the benefit of all,
both producers and consumers).
Instrument Policy
There are seven main instruments of
trade policy.
 Tariffs - a tax or duty to be paid on a
particular class of imports or exports.
 Subsidies - a subsidy or government
incentive is a type of government
expenditure targeted towards individuals
and households, as well as businesses
with the aim of stabilizing the economy.
 Import quotas - is a limit on the number
of imports that can be brought into a
particular country.
 Voluntary export restraints - is a self-
imposed trade restriction where the
government of a country limits the
amount of a certain good or category of
goods that are allowed to be exported to
a different country.
 Local content requirements - are a type
of trade protection mechanism that
depends on the law to create
requirements for international
companies and forces them to produce
or rent a certain amount of goods and
services domestically.
 Antidumping policies - An antidumping
law is any domestic law designed to
prevent a country's trading partners from
“dumping” goods into domestic markets
at any price that is less than fair.
 Administrative policies - Administrative
trade policies consist of bureaucratic
rules, laws, and regulations designed to
create serious difficulties for an importer
of goods or commodities into a
particular nation.
What are the Political arguments for
Intervention?
1. Protecting jobs – results from political
pressures by unions or industries that
are “threatened” by more efficient
foreign producers, and have more
political clout than consumers.
2. Protecting industries deemed important
for national security - Industries like
aerospace or electronics are often
protected because they are deemed
important for national security.
3. Retaliating to foreign unfair competition
– when governments take, or threaten to
take specific actions, other countries
may remove trade barrier.
4. Protecting consumers from dangerous
products – limit “unsafe” products.
5. Furthering the goals of foreign policy –
preferential trade terms can be granted
to countries that a government wants to
build strong relations with.
 6. Protecting the human rights of individual
in exporting countries – through trade
policy actions.

LECTURE 3: GLOBALIZATION GLOBALIZATION OF MARKETS AND

GLOBALIZATION OF PRODUCTION

Globalization of Markets their production processes and spread them

across the globe to optimize efficiency and
Globalization of markets refers to the
reduce costs.
process by which businesses develop and
market their products or services globally. It
involves creating standardized products for
the global market, emphasizing universal
needs and preferences rather than specific Key Aspects:
regional differences.
Outsourcing: Companies outsource specific
Key Aspects: tasks or services to third-party providers,
often in countries where labor is cheaper.
Standardization: Global companies often
standardize their products to cater to a Supply Chain Integration: Firms integrate
universal market. For example, multinational their supply chains globally, ensuring
fast-food chains offer consistent menus efficient movement of goods and
worldwide. components across borders.
Mass Marketing: Globalization of markets Specialization: Different countries specialize
involves mass marketing strategies, where in specific stages of production. For
advertising and branding campaigns have example, some countries focus on
global appeal, transcending cultural and manufacturing, while others specialize in
linguistic barriers. research and development.
Global Consumer Culture: As markets
become more global, consumers across the
world start sharing similar preferences and DRIVERS OF GLOBALIZATION
behaviors, leading to the emergence of a CHANGING DEMOGRAPHICS
global consumer culture. Changing demographics, including shifts in
population size, age distribution,
urbanization, and migration patterns, play a
Globalization of Production significant role in driving globalization.
Here's how changing demographics
Globalization of production (also known as
influence the global landscape:
offshoring or outsourcing) involves sourcing
goods, services, or components from
different countries based on cost, quality, or
other strategic factors. Firms can fragment Population Growth and Urbanization:
Increased Consumer Base: Growing
populations, especially in emerging
Youthful Populations in Developing
economies, create larger consumer
Countries:
markets. Urbanization, with more people
moving to cities, intensifies market Innovation and Entrepreneurship: Young
demands, fostering globalization to meet populations in many developing nations
these needs. drive innovation and entrepreneurship.
These innovations can lead to the global
Infrastructure Development: Rapid
export of technology and startup culture.
urbanization often leads to infrastructural
developments, including transportation and Workforce for Global Industries: Young,
communication networks, enabling easier educated populations become part of the
global trade and connectivity. global workforce, contributing to industries
like information technology, customer
service, and research and development.
Aging Population in Developed
Countries:
Changing Family Structures:
Demand for Services: Aging populations in
developed nations create demands for Consumer Behavior: Changes in family
healthcare, elderly care, and specialized structures, such as smaller households or
services, encouraging international dual-income families, influence consumer
collaborations and trade in these sectors. behavior. Global markets adjust to meet
diverse family needs and preferences.
Global Retirement Migration: Retirees from
developed countries often move to countries Child and Elderly Care Services: Shifts in
with lower living costs, driving international family responsibilities drive demands for
real estate markets and service industries in international collaboration in child and
those regions. elderly care services, leading to
globalization in these sectors.

Migration Patterns
Global Health Challenges:
Diaspora Economies: Global migration
creates diaspora communities, leading to Pandemics and Health Responses: Global
transnational economic activities. health challenges, like pandemics, highlight
Remittances sent back to home countries the interconnectedness of the world.
contribute to economic globalization. Collaborative efforts in healthcare research,
pharmaceuticals, and medical supplies drive
Cultural Exchange: Migration fosters cultural
globalization in these fields.
exchange, leading to the global spread of
cuisines, traditions, and languages.
LECTURE 4: CULTURES AROUND
THE WORLD
hamburgers, potato chips,
hotdogs, and macaroni that are
Culture has been called, “The way of life for an commonly identified as
entire society.” American have made their way
Why do we need to learn the Cultures into the Filipino food culture.
 Religion - Spanish Catholic
Around the World?
missionaries taught Filipinos
Because in this progressive era that we live, it is their customs, language,
inevitable to meet people that has different manners, habits, and trades.
views, beliefs, and norms depending on where Even today, most of the Filipino
they live and environment they grown up with. population carries Spanish
On some cases we may see people doing some family names, such as Reyes,
practices that we are not familiar, so this topic dela Cruz, and Santos.
could give us some awareness to show respect  Language - Chavacano, the
and understand other people’s action. only Spanish-based creole in
Asia, is a mixture of two or more
What is the Role of Culture in languages mostly borrowed
International Business? from Spanish words.
Business is not just a financial transaction. It
goes beyond money as it is all about building
relationship to gain long-term partnership. In B. The Sub-culture within a Society
order to stay in the industry for long, we need to
find that connection and make sure to cherish it. Sub-culture - a group within a society whose
So, we must get-to-know our business partners, behaviors, norms and values differ in some
suppliers, employees and more. They are not distinct ways from the dominant culture.
just mere avenue to success but let’s consider There are different types of subcultures in
them as a companion in attaining our goal. We the world depending on their:
should know what are their practices in terms of
business.  Ethnicity: Bicolano, Cebuano, Waray,
Tagalog etc.
 Religion: Catholics, Born-again
A. Cultural Influences Christians, and other more.
 Geographic location: Farmers
Filipinos have already established Association
trading and diplomatic relations with  Age: Young gamers, skaters, cyclists,
other neighboring Asian countries. and more.
 Foods - Chinese culture  Gender: LGBTQIA+, Women
contributed in culinary arts in organizations
Philippines. We adapted some
dishes such as siomai, pancit,
foods with tofu, miso, toge and C. Influences of Cultures and Sub-
many more. Foods like Cultures

International trade is becoming more
focused on cultural knowledge and
sensitivity as a result of rapid
globalization.
 Culture - refers to the set of
ideas, customs, and social
behavior of a particular person
or society.
 Subcultures - groups that are
perceived to deviate from the
normative standards of the
dominant culture for example
goths, punks, hippies, emo’s
etc.
In business context, culture refers to the
behavior that is commonly accepted
professionally from one location
compared to another. For example,
some business practices that we have
here in the Philippines may not be
accepted on other countries. Here are
the following factors that plays an
important role in International Business:
 Communication - language
barrier, is very common on
International Business. They
don't speak the same language
that's why they hire interpreters.
But it goes deeper than that, we
also have to be careful how to
deliver it like the tone of how
you speak and whatnots.
 Attitude - The way that different
culture’s view business varies
as well. For instance, Sweden
emphasizes social equality and
maintains a flat organizational
hierarchy. In contrast to Japan,
where people respect seniority
and it shows in how they
address one another, they
spoke to one another in a more
formal manner there.
 Workplace Etiquette - Example
for that is the way we address
someone. We have to consider
the way we address our peers
or clients when communicating
with them. Some cultures like
Asian culture, preferred to be
addressed by their surnames,
while on American culture, they
prefer to be called by their first
names.
 Negotiation Styles - The
negotiation style of a company
is also influenced based on their
culture. For example, in
American culture, when they
negotiate, they are very direct in
their response whether they
approve or not, while in
Japanese culture, they are very
indirect, the response is even
caressing because the
Japanese people find it impolite
to directly say no.
D. Variations in Business Sub-
Cultures
Subcultures - groups that are seen to
break away from the normative
standards of the dominant culture.
Subcultures are formed when that
individuals or employees in a company
have the same experience, interest or
values that differ from the dominant
culture. Variations of Sub-cultures may
be formed based on Job Designation.
Job Designation
 Geographical Separation –
subculture formed when the
group of employees in one
company operates in another
location apart from the main
business workplace.
 Departmental Designation – this
is when the employees are
working within the same
department, subculture formed
based on their unique values to
help them execute tasks.
E. Family Relationships

Family is also very important to how a
person develops because even within
culture, a family forms its own unique
culture, that is, its family culture. This
family culture influences members of the
family because the culture of a family
teaches individuals how to handle
conflict, listen, learn rules and
communicate in general. All of these
factors influence how a person behaves
towards other family members and
towards others in society and are based
off what they are taught by their families
F. Society Institutions
Social institutions are mechanisms or
patterns of social order focused on
meeting social needs, such as
government, economy, education,
family, healthcare, and religion. Some
sociological methods focus on
examining social institutions over time,
or compare them to social institutions in
other parts of the world.
G. Education
Culture and education are two
inseparable parameters and they are
interdependent. Any educational pattern
gets its guidance from the cultural
patterns of a society. For instance, in a
society with a spiritual pattern of culture,
the educational focus would be on the
achievement of moral and eternal
values of life. On the contrary, if the
culture of a society is materialistic, then
its educational pattern will be shaped for
the attainment of materialistic values
and comforts. A society which does not
follow any culture definitely has no
I.
definite educational organization. So,
the culture of a country has a very
powerful impact on its educational
system.
H. Gender Roles
The influence of culture on gender roles
and expectations has been immense
over time. Culture plays a pivotal role in
dictating the norms and beliefs around
gender and what is expected of
individuals based on their sex. In many
parts of the world, culture and society
have specific ideas of what is
acceptable and unacceptable for men
and women, often limiting the way
people can live their lives.
Cultural attitudes towards gender vary
widely, often making distinctions
between masculine and feminine
behaviors and characteristics. Many
cultures strongly define and limit what
men and women can and should do.
Men may be expected to behave in
ways deemed more masculine such as
being stoic and hardworking, while
women may be expected to be gentle,
submissive and deferential.
Consequently, these beliefs and
expectations can place limits on a
person's freedom to act as they choose
and can create an environment of
judgement or prejudice.
Society and culture also shape the
opportunities that men and women
have, particularly in terms of educational
and professional opportunities. There
may be strong views on whether it is
appropriate or necessary for a woman to
pursue higher education or to enter the
workforce, for instance. Attitudes
towards career opportunities and how
work should be shared within families,
or between men and women, can be
largely informed by culture and vary
significantly across the globe.
Mobility
Culturally mobile describes daily reality
for people who straddle culture. This
includes Global Nomads, Third Culture
Kids, and racially-blended, culturally-
blended, or ethnically-blended people.
For these individuals, culture is not
static. The fluidity that comes along with
 traversing the cultures that exist in
different countries, different races,
ethnicities and sometimes even cities in
the same country.
J. Class System
is a social hierarchy in which society is
divided up based upon their
socioeconomic status and cultural
values. At its worst, it causes social
barriers and prejudices that discriminate
against the lower and working class.
Class System is categorized in multiple
ways. One common category is as
follows as defined by Hoult:
 Objective Social Class: all the
aspects of social class that can
be expressed in objective terms
such as income, occupation &
education.
 Subjective Social Class: how
people choose to perceive and
categorize themselves & their
class allegiances.
CLASS SYSTEM THEORY & buying what you want,
THEORISTS
1. Karl Marx - was a German-born
philosopher, economist, political
theorist, historian, sociologist,
journalist, and revolutionary
socialist. Known works is The
Communist Manifesto, a political
pamphlet about history of class
struggles. He argued that class
conflict exists in every society. In
industrial societies, this primarily
occurs between 2 classes: the
bourgeoisie (owners of the means of
production, such as the factory
owners) and the proletariat (those
who work for the owners and earn a
wage for a living). The bourgeoisie
controls all social institutions. They
use control over the social
institutions and economic capital to
maintain their dominance over the
proletariat. They exploit the
proletariat by employing them for
below their real value, and scraping
the profits for themselves, thereby
increasing social inequality. When
the proletariat became aware of
their exploitation by the capitalist
class, Marx believed it would lead to
societal change & the rise of
communism.
2. Pierre Bourdieu – a French
sociologist & public intellectual. He
creates a very useful
conceptualization of class that is far
less radical and helps to
demonstrate how class operates in
society to maintain the power of the
upper class over the middle-class
and working class. Bourdieu’s ideas
boil down to a conceptualization of
three types of capital, held by the
elites in greater quantities than the
working-class:
 Economic Capital:
Economic capital refers to
money and assets, such as
the value in your home. If
you have economic capital,
you can get a better life by
going on more holidays,
getting a good education,
and so forth. The working-
class owns far less
economic capital than the
middle and upper- classes.
 Cultural Capital: Cultural
capital involves the cultural
aptitudes of an individual or
group. It can include a
person’s accent (where
upper-class accents are
considered more desirable
in job interviews, etc. than
working-class accents),
their tastes (where the elites
have refined tastes in art
and food, for example), and
institutionalized cultural
capital, such as possession
of a university degree from
an elite institution which can
open doors for you.
  Social Capital: Social capital
refers to the people you
know. Generally, the upper-
classes and elites know
more people in power (such
as judges, CEOs, and
politicians), which can open
doors for them through a
simple phone call that the
working-classes cannot
achieve.
THE 3-TIERED CLASS SYSTEM
Working Class - The working class
represents those people in society who work
paycheque to paycheque and have minimal
leverage in the labor market. They tend to work
in low-paid and low- skilled jobs, often which
require physical labor and are in the services
sector of the economy (ex. blue collar
jobs).
Middle Class - This group sits between
the working and upper class, where they still
must work for a living, but also have
disposable incomes, and are often amassing
capital through their mortgages and home
ownership. People in the middle-class often
have college degrees and work in
professional white-collar professions.
Upper Class (Elites) - The upper class is
the smallest class group and represents the
owners of capital. Often, this group does
not need to work for their money, or, as business
owners, they delegate responsibilities to the
managerial class for managing their capital. This
class group is reserved for highly successful
large business owners, people with inherited
wealth, and nobility. They’re defined not just
through their wealth (although this is a primary
marker), but also their refined tastes, ample
leisure time, and high cultural pursuits such as
playing polo, collecting art, and going at the
opera.
K. Communication Across Cultures
Communicating across cultures is
challenging. Each culture has set rules
that its members take for granted. Few
of us are aware of our own cultural
biases because cultural imprinting is
begun at a very early age. And while
some of a culture's knowledge, rules,
beliefs, values, phobias, and anxieties
are taught explicitly, most of the
information is absorbed subconsciously.
High Context vs. Low Context
High-context cultures (Mediterranean,
Slav, Central European, Latin American,
African, Arab, Asian, American-Indian)
leave much of the message unspecified,
to be understood through context,
nonverbal cues, and between-the-lines
interpretation of what is actually said. By
contrast, low-context cultures (most
Germanic and English-speaking
countries) expect messages to be
explicit and specific.
Sequential vs. Synchronic
In sequential cultures (like North
American, English, German, Swedish,
and Dutch), businesspeople give full
attention to one agenda item after
another.
In synchronic cultures (including South
America, southern Europe and Asia) the
flow of time is viewed as a sort of circle,
with the past, present, and future all
interrelated. This viewpoint influences
how organizations in those cultures
approach deadlines, strategic thinking,
investments, developing talent from
within, and the concept of "long-term"
planning.
Affective vs. Neutral
In international business practices,
reason and emotion both play a role.
Which of these dominates depends
upon whether we are affective (readily
showing emotions) or
emotionally neutral in our approach.
Members of neutral cultures do not
telegraph their feelings, but keep them
carefully controlled and subdued. In
cultures with high affect, people show
 their feelings plainly by laughing,
smiling, grimacing, scowling, and
LECTURE 5: BUSINESS ETIQUETTE
AROUND THE WORLD
VALUES AROUND THE WORLD
1. What is Values and Etiquette and Why
is it Important to Business?
 What is Etiquette?
is a set of customs and rules for polite
behavior, especially among a particular
class of or in a particular profession.
Etiquette refers to behaving in a socially
responsible way.
 Why Etiquette is important to the
business?
Business etiquette is important because
it creates a professional, mutually
respectful atmosphere and improves
communication, which helps an office
serve as a productive place. People feel
better about their jobs when they feel
respected, and that translates into better
customer relationships as well.
 What are Values?
Values are individual beliefs that
motivate people to act one way or
another. They serve as a guide for
human behavior. Generally, people are
predisposed to adopt the values that
they are which translates into better
customer relationships raised with.
 Why values are important in
business?
Business values are the concepts that
guide your business. Business values
can help you make decisions, foster a
culture of teamwork and collaboration
and create a positive working
environment.
sometimes crying, shouting, or walking
out of the room.
Business etiquette refers to the requirements
and expectations of social and business
behavior, practices and conduct that are
prescribed by social convention, and a code of
ethical behavior among professionals. It
basically boils down to demonstrating good
manners.
Example of Business Etiquette in the
Philippines:
What to expect on the first meeting:
A typical Filipino culture that has gone through
many changes is when meetings start.
Customarily, Filipinos have a term called
“Filipino time,” where one can be late ten to
fifteen minutes before any social occasions or
gatherings. Did you know that this habit is not
just due to generational passing down of
character traits but was a sign of high status? Of
course, this practice is no anymore noticeable.
Today, Filipino society makes sure that they are
always on time, no matter what position they
may have.
First-time meetings are significant for building
better communications and relationships.
Filipinos expect a personal introduction for them
to trust you, and you can do so either verbally or
by giving a business card.
Filipinos Speak Different Languages:
Know Which One to Learn
Filipinos generally can speak English as it is one
of the most commonly used languages globally
in business deals. Tagalog or Filipino is another
widespread language that business people in
parts like Metro Manila or the rest of NCR can
speak. On the other hand, if you are dealing with
partnerships in the Northern parts of Luzon,
Visayas, or Mindanao, you may have to learn
other languages in the Philippines like Cebuano,
Visayan, Hiligaynon, Ilocano, or Tausug.
All in all, Filipino dialects and languages may
vary, but many Filipinos can still understand
English or Tagalog predominantly. So, if you
want a smoother and stress-free business
meeting, you should try to learn Tagalog and not
rely on English only.
What to Wear in a Filipino Business
Meeting
Business arrangements in the Philippines
require one to dress conservatively, as Filipino
society is reserved. What you wear is a direct
reflection of how you respect your Filipino
colleagues.
Business Etiquette: Japan
Men are often dressed in suits, including a
necktie and a handkerchief in the pocket.
Nowadays, Filipinos wear Americanos, modern
tuxedos, and formal office attire. Women wear
formal office blouses, polos, skirts, and slacks
for very formal business meetings. But it
depends if you’re dealing with a partnership with
variously themed parties. Filipino culture loves
parties and enjoying themselves. You may also
have to look for the right attire accordingly.
A very traditional and formal business attire
would be men wearing Barong Tagalog and, for
the women, Baro’t Saya. These garments are
reserved only if you’re meeting a government
official or if it is required by the venue where the
meeting will take place.
Examples of Business Etiquette around
the world:
Business Etiquette: China
 Show up on time for business meetings.
Punctuality is important to the Chinese
and being late is offensive.
 Chinese people appreciate
a conservative dress code, and you
should avoid physical contact while
conversing.
 Always be prepared for meetings.
Conduct research on the company
ahead of time and avoid scheduling a
meeting during a Chinese holiday.
 Enter the room in hierarchical order. The
person of the highest seniority will enter
the room first and the rest will follow in
order.
 Mandarin is the official language of
China, but there are some other
languages to be aware of, such as
Cantonese and Shanghainese.
 Avoid firm negatives, such as a simple
“no.” Try to find an alternative, such as
“That’s something I will have to think
about.”
 Bowing is a typical way of greeting each
other. Handshakes sometimes occur,
but you should let the Japanese person
initiate it.
 The senior member of the group often
leads the business meeting while
younger members, out of respect, speak
less. People of similar positions in
different groups should sit across from
each other; junior employees should
never sit across from senior employees.
 Giving gifts is common, but you should
pay special attention to how you present
your gift. Never hand out a gift that isn’t
wrapped and make sure you give it to
the person with both hands.
 When handing out business cards,
make sure you’re using both hands.
Bowing during this exchange is viewed
as a form of respect.
Business Etiquette: India
 While you can show up to meetings on
time, don’t be surprised if Indian
business partners are late.
 Like in China, the word “no” can be
considered rude in India. Try to use
words and phrases like “we will see” or
“possibly” instead of “no.”
 If your business partner offers you a
meal, it is proper etiquette to accept the
invitation. Declining the meal could
Different Cultures in Business
 Clan Culture - Clan cultures offer a very
friendly working environment where
things like relationships, morale,
participation, and consensus take center
stage.
 Adhocracy Culture - This culture fosters
a very entrepreneurial type of work
environment, where employees are
Does value vary from culture to culture?
Values are not static; they vary across time and
between groups as people evaluate, debate,
and change collective societal beliefs. Values
also vary from culture to culture. For example,
cultures differ in their values about what kinds of
physical closeness are appropriate in public.
Cultural values are the key principles or morals
that underpin a cultural group. They may be
based on religion, tradition, philosophy,
collective memory, and custom. Examples of
cultural values include respect for elders, family
values, individualism, and egalitarianism.
 Religion - There are several ways that
culture can affect religion. First, culture
can influence what religious beliefs we
hold. Second, culture can shape how we
practice our religion. And third, culture
can impact the way we think about and
experience religious concepts like God,
prayer, and ritual.
 Tradition - The main difference between
culture and tradition is that traditions
jeopardize the possible business
connection.
 Avoid eating meat at business meetings
if everyone else is ordering vegetarian
meals. Many people in India do not eat
pork or beef for religious reasons.
 When conducting business in India,
English is the typical language to use.
encouraged to take risks and
aggressively pursue off-the-wall ideas.
 Market Culture - A market culture is also
called a “compete culture,” because the
emphasis is placed on results. To put it
simply, people want to win and
accomplish what they set out to do
 Hierarchy Culture - is also known as
control culture. This culture is about
work environment that are more
structured and process oriented.
describe a group's beliefs and behaviors
that are passed down from one
generation to another. Culture describes
the shared characteristics of the entire
group, which has been amassed
throughout its history.
 Philosophy - Philosophy is the means by
which every culture provides itself with
justification for its values, beliefs and
worldview and also serves as a catalyst
for progress. Philosophy critically
questions and confronts established
beliefs, customs, practices, and
institutions of a society.
 Collective Memory - Cultural memory is
a form of collective memory shared by a
group of people. Cultural memory is
often stored in objects, such as
museums or historical monuments. To
understand culture, humans access a
vast array of cultural symbols, such as
books. Artifacts of the past provide
insights into where we came from.
 Custom - A custom is a widely accepted,
traditional way of behaving or doing
something that is unique to a specific
 society, location, or time. Each society,
religion, and community have its own
set of customs. Customs are an
important aspect of culture. As
previously stated, custom can be a form
of cultural representation.
Two Major Reactions Cultural
Difference
LECTURE 6: POLITICAL SYSTEMS,
ECONOMIC SYSTEM AND
RELIGIOUS SYSTEM
Political Systems:
 Democracy: In a democratic system,
power is vested in the hands of the
people, who elect representatives to
make decisions on their behalf.
Examples include the United States and
India.
 Authoritarianism: In authoritarian
systems, power is concentrated in the
hands of a single leader or a small
group, and individual freedoms and civil
liberties are often limited. North Korea
and China (under the Chinese
Communist Party) are examples.
 Monarchy: In a monarchy, a hereditary
ruler (king or queen) holds ultimate
authority. There can be absolute
monarchies (like Saudi Arabia) or
constitutional monarchies (like the
United Kingdom).
 Oligarchy: Oligarchies are governed by
a small, elite group of individuals or
families who control key aspects of the
government and economy. They may
exercise power directly or indirectly.
Examples include some historical city-
states and certain contemporary nations
with powerful elites.
 Cultural relativism refers to not judging a
culture to our own standards of what is
right or wrong, strange or normal.
 Ethnocentrism is a major factor in the
divisions among members of different
ethnicities, races, and religious groups.
It's the belief that one's ethnic group is
superior to another. Ethnocentrism
compares other cultures by using a
group's specific culture as the basis of
that comparison, believing theirs to be
superior and the standard to be used in
comparison to other cultures.
HOW POLITICAL, ECONOMIC AND
RELIGIOUS SYSTEM OF COUNTRIES
DIFFER
Economic Systems:
 Capitalism: Capitalist systems
emphasize private ownership of
businesses and a free-market economy,
where supply and demand dictate prices
and production. The United States and
most Western countries have capitalist
economies.
 Socialism: As mentioned earlier,
socialism involves varying degrees of
government ownership or control of key
industries and services. Scandinavian
countries like Sweden and Denmark are
often cited as examples of mixed-market
economies with strong social welfare
programs.
 Communism: Communism, as an
economic system, advocates for the
abolition of private property and the
means of production owned collectively.
In practice, this has led to centralized
planning. The Soviet Union and China
have experimented with communist
economic models.
 Mixed Economy: Many countries adopt
mixed economies, combining elements
of capitalism and socialism. For
instance, Canada and Germany have
market economies with significant
government involvement in healthcare
and social services.

Religious Systems:
 Monotheism: This belief system centers
on the worship of one God. Examples
include Christianity, Islam, and Judaism.
 Polytheism: Polytheistic religions
involve the worship of multiple deities or
gods. Hinduism and ancient Greek and
Roman religions are examples.
 Atheism: Atheism is the absence of
belief in deities or gods. Some
countries, like Sweden and Japan, have
relatively high atheist or non-religious
populations.
 Secularism: Secular countries separate
religion from government, emphasizing
a neutral stance on religious matters.
France and Turkey have strong secular
traditions.
 Buddhism: Buddhism, originating in
India, is a non-theistic religion that
focuses on personal spiritual
development. Countries like Thailand
and Sri Lanka have significant Buddhist
populations.
It's important to note that these systems are not
mutually exclusive, and many countries blend
elements from multiple categories. Furthermore,
each nation's unique historical, cultural, and
social factors contribute to the development of
its specific political, economic, and religious
systems. These systems can also evolve over
time in response to changing circumstances and
societal demands.
HOW RELIGIOUS BELIEFS AFFECT
INTERNATIONAL TRADE
Effects of Religion on Trade
Religious belief may influence trade in two ways.
First, a shared religious belief may enhance trust
and therefore reduce transaction costs between
trading partners. This effect should be
particularly important for goods that are sensitive
to trust. Second, as we have seen above, the
world religions accord different importance to the
activity of trade. In Islam, for example, traders
enjoy a very positive reputation, whereas in
Christianity trade is seen more as a necessity
Effects of Religion on Trade
Religious belief may influence trade in two ways.
First, a shared religious belief may enhance trust
and therefore reduce transaction costs between
trading partners. This effect should be
particularly important for goods that are sensitive
to trust.
WHY ECONOMICS AND POLITICS ARE
INSEPERATABLE?
Economics is concerned with studying and
influencing the economy. Politics is the theory
and practice of influencing people through the
exercise of power, e.g., governments, elections
and political parties.
In theory, economics could be non-political. An
ideal economist should ignore any political bias
or prejudice to give neutral, unbiased
information and recommendations on how to
improve the economic performance of a country.
Elected politicians could then weigh up this
economic information and decide.
In practice there is a strong relationship between
economics and politics because the
performance of the economy is one of the key
political battlegrounds. Many economic issues
are inherently political because they lend
themselves to different opinions.
A country’s economic situation is driven by
political policies that govern the land. Policies
can directly or indirectly impact economics.
Example, Fiscal policy is related to government
spending tax money for the citizens. For
example, I pay tax then the government used
the money to improve and develop the economy
of the country but sometimes the money we are
paying for taxes did not used efficiently because
of corruption.

HOW COLLECTIVISM AND
INDIVIDUALISM AS POLITICAL
IDEOLOGIES AFFECT ECONOMIC
SYSTEM
Collectivism prioritizes the needs of the
collective over the needs of the individual and
supports the idea that everything within society
is shared equally amongst its members. This
includes the goals people work towards and the
wages they get for their work.
Collectivism also believes true social
transformation can only be achieved through a
collective effort.
Pros of Collectivism
Collectivism has some positive sides. In theory,
it can lead to a safe and stable society:
everyone shares the same objectives, works
towards the same goal, and therefore aims to
avoid conflicts. Collectivism can also be quite
efficient; it allows for one or one shared authority
to control the production and distribution of work
and property within the entire society. Also, in a
collectivist society, it is easy to get help when
needed: if one person's problem is everybody's
problem, everybody is motivated to fix it as
quickly as possible. Lastly, collectivism
encourages selflessness for the sake of
benefiting the collective.
Individualism focuses on the latter. As one of
the founding principles of modern western
thought, individualism focuses on personal
fulfilment, rights, and self-interest. While this can
help preserve individual rights, it can sometimes
be at odds with the interests of others and the
good of the collective. In this piece, you will find
how this ideology influences more than just
behavior and has found its way into politics,
economy, and philosophy.
Individualism emphasizes individual freedom
and personal achievements, independent of a
collective (and sometimes disregarding it). It's
considered one of the most important societal
influences today, especially in American and
European cultures. As a concept, you could
apply individualism to many fields, such as
economics, sociology, philosophy, theology, and
politics.
Individualism carries positive and negative
connotations in the political landscape.
Fundamentally, individualism opposes
collectivism, which can cause conflict when it
comes to nation-building and governing.
ENUMERATE HOW COLLECTIVISM AND
INDIVIDUALISM AS POLITICAL
IDEOLOGIES AFFECT ECONOMIC
SYSTEM
Collectivism and individualism are two opposing
political ideologies that have a major impact on the
economic system.
COLLECTIVISM:
 Centralized Planning- this is the
government or a collective authority that
has great control over production,
distribution, and resource allocation.
Economic plans and decisions are made
through extensive government
coordination or a centralized institution.
This is to ensure that the production
meets the needs of the people and that
the resources are properly adapted to
the needs of the country.
 Public Ownership- collectivist
economic systems often have high
levels of public or high state ownership
of key industries and resources. This
may include sectors such as health
care, education, transportation, and
energy.
 Income Equality- Collectivist ideologies
prioritize income equality and often
implement progressive policies when it
comes to taxation to redistribute wealth.
 Social Welfare- typically provide
extensive social welfare programs,
including universal health care,
education, and unemployment benefits,
to ensure that all citizens have access to
basic services and a safety net.
INDIVIDUALISM:
 Free Market- Individual ideologies, such
as Capitalism, which have a free market
where private individuals and
businesses have control over the
exchange of economic products or
services.
 Private Ownership- individualist
economic systems, private ownership of
property, resources, and means of
production is strongly encouraged. It
LECTURE 7: FOREIGN EXCHANGE
MARKET
CONCEPT OF FOREIGN EXCHANGE
MARKET
FOREIGN EXCHANGE MARKET: The foreign
exchange market, often referred to as the Forex
or FX market, is the global marketplace for
buying and selling currencies. It is the largest
and most liquid financial market in the world.
The primary purpose of the foreign exchange
market is to facilitate the exchange of one
currency for another, which is essential for
international trade and investment.
KEY CONCEPTS:
CURRENCY PAIRS: In the Forex market,
currencies are traded in pairs. Each currency
pair consists of two currencies, a base currency
and a quote currency.
 MARKET PARTICIPANTS: The Forex
market is decentralized, with
participants from around the world,
including banks, financial institutions,
corporations, governments, speculators,
and retail traders. These participants
engage in Forex trading for various
reasons, including hedging against
currency risk, conducting international
trade, and seeking speculative profits.
 TRADING CENTERS: Unlike traditional
stock exchanges, the Forex market
allows individuals to pursue their
economic interests independently.
 Profit Incentive- is a system in which
people or businesses strive for income
or something they want to get as a
motivation to do different things in the
economy.
 Competition- competition pushes
companies to be more effective and
efficient in order to remain competitive
when it comes to the market
operates 24 hours a day, five days a
week, due to the global nature of
currency trading.
 LIQUIDITY: The Forex market is highly
liquid, meaning there is a significant
volume of buying and selling activity at
any given time. This liquidity allows
traders to enter and exit positions with
ease, and it typically results in narrow
bid-ask spreads.
 LEVERAGE: Forex trading often
involves the use of leverage, which
allows traders to control larger positions
with a relatively small amount of capital.
While leverage can amplify potential
profits, it also increases the risk of
substantial losses.
 EXCHANGE RATE FLUCTUATIONS:
Exchange rates are constantly changing
due to various factors, including
economic indicators, geopolitical events,
interest rate differentials, and market
sentiment. Traders and investors aim to
profit from these fluctuations by buying
when they expect a currency to
appreciate and selling when they
anticipate depreciation.
 MARKET PARTICIPANTS' ROLES:
HEDGERS: Entities like multinational
corporations use the Forex market to
hedge against currency risk by locking
in exchange rates to protect against
adverse movements.
  SPECULATORS: Traders and investors
speculate on future exchange rate
movements to profit from price
fluctuations. They aim to buy low and
sell high or sell high and buy low.
 ARBITRAGEURS: Arbitrageurs seek to
profit from price discrepancies between
different currency pairs or markets by
buying low in one market and selling
high in another.
 MARKET ANALYSIS: Fundamental
analysis and technical analysis are two
common approaches used to analyze
the Forex market. Fundamental analysis
involves studying economic, political,
and geopolitical factors that can
influence exchange rates. Technical
analysis, on the other hand, relies on
historical price data and chart patterns
to make trading decisions.
 RISK MANAGEMENT: Due to the
inherent volatility of the Forex market,
risk management is crucial. Traders
often use stop-loss orders and take-
profit orders to limit potential losses and
secure profits.
FUNCTIONS OF FOREIGN
EXCHANGE MARKET
1. TRANSFER FUNCTION
- Primary function of foreign exchange market
- facilitates the transfer of purchasing power in
terms of foreign exchange between the
countries that are involved
2. CREDIT FUNCTION
- Implies the provision of credit in terms of
foreign exchange for the export and import of
goods and services.
TYPES OF FOREX MARKET
The foreign exchange market features different
modes of trading, and they are embodied as
follows:
SPOT MARKET: Transactions demand quick
payments at the prevailing exchange rates. It
requires immediate currency delivery or
exchange on the spot- often within 48 hours.
Spot transactions are those in which currency
exchange occurs two days following the contract
date.
FORWARD MARKET: The forward market
involves transactions in which exchange takes
place at a specified date in the future for a
specified price. In other words, the forward
currency market entails making a contract today
to purchase or sell foreign currency in the future.
FUTURE MARKET: A futures contract is another
version of a forward contract traded publicly on a
futures exchange. It includes the price and the
time in the future to buy or sell an asset, just like
a forward contract.
SWAP MARKET: Swaps allow the exchange of
two streams of cash flows in two different
currencies. Swaps, or double transactions, are
operations in which a purchase or sale of the
same currency for forwarding delivery follows a
simultaneous sale or purchase of spot currency.
OPTIONS MARKET: Options are derivative
instruments that allow a foreign exchange
market operator to buy or sell a foreign currency
at a predetermined rate (strike price) on or
before a specific date (maturity date). A call
option allows traders to buy the underlying
asset, whereas a put option allows them to sell
it.
CURRENCY CONVERSION is the process of
exchanging one currency for another at an
agreed-upon exchange rate. This exchange can
occur for various reasons, such as travel,
international trade, investment, or financial
transactions. Currency conversion is essential
for conducting business and travel in countries
with different official currencies.
Here's how currency conversion typically works:
EXCHANGE RATES: Exchange rates represent
the value of one currency relative to another.
These rates can fluctuate due to various factors,
including economic conditions, interest rates, exchange rate available, you may first convert
geopolitical events, and market sentiment. USD to EUR and then EUR to GBP.
Exchange rates can be quoted in different ways,
EXCHANGE RATE MARGINS: It's important to
such as spot rates (current market rates) or
be aware that currency exchange services,
forward rates (future rates).
including banks and currency exchange
CURRENCY EXCHANGE SERVICES: Currency counters, often charge a margin or spread
conversion can be done through various above the market exchange rate. This difference
channels, including: represents their profit or fee for providing the
service. As a result, the rate you receive for
BANKS AND FINANCIAL INSTITUTIONS:
currency conversion may not be the same as the
Banks often provide currency exchange
market rate.
services, both at physical branches and through
online banking platforms. They may charge fees CONSIDERATION OF FEES: When converting
or offer different exchange rates. currency, consider any fees associated with the
conversion. These can include service fees,
CURRENCY EXCHANGE COUNTERS:
ATM withdrawal fees, and credit card foreign
Airports, hotels, and tourist areas often have
transaction fees. It's a good idea to compare
currency exchange counters where travelers can
rates and fees from different providers to get the
exchange money.
most favorable exchange rate.
CURRENCY EXCHANGE APPS AND
An ECONOMIC THEORY is a model that is
WEBSITES: Many online platforms and mobile
used to explain how economies function as well
apps offer real-time exchange rate information
as describe various economic phenomena.
and allow users to convert currencies. Some of
Some well-known economic theories are
these services may charge fees or offer less
classical economics and Keynesian economics.
favorable rates.
EXCHANGE RATES are generally determined
ATMs: When using an ATM in a foreign country, by the market forces of supply and demand for
you can typically withdraw cash in the local foreign exchange.
currency. The exchange rate used for the
The PURCHASING POWER PARITY THEORY
conversion is usually determined by your bank suggests that exchange rates should adjust so
and may include fees. the identical goods have the same price in
different currencies when expressed in a
CONVERSION PROCESS: To convert currency,
common unit. PPP is based on the law of one
you typically need to provide the amount you
price, which states that in a frictionless market,
want to exchange and specify the currencies
identical goods should sell for the same price.
involved (e.g., converting USD to EUR). The
currency exchange service will then calculate PPP can be expressed in two forms
the equivalent amount in the desired currency
a. ABSOLUTE PPP
based on the current exchange rate. Fees and
commissions, if applicable, will be deducted Absolute PPP states that exchange rates should
from the amount exchanged. equal the ration of price levels between two
countries. In mathematical terms, if P1 and P2
CROSS-CURRENCY CONVERSION: In some represent the price levels in two countries and E
cases, you may need to perform a cross- is the exchange rate, then E = P1/P2
currency conversion, which involves converting
one currency into a second currency by way of a
third currency. This is common in international
finance and trading. For example, if you want to
convert USD to GBP, but there is no direct
The LAW OF ONE PRICE states that in
competitive markets free of transportation costs
and barriers to trade, identical products sold in
different countries must sell for the same price
when their price is expressed in terms of the
same currency.
b. RELATIVE PPP
Relative PPP accounts for changes in price
levels over time. It posits that the percentage
change in exchange rates should be equal to the
difference in the inflation rates between two
countries. In mathematical terms, if ΔE
represents the percentage change in the
exchange rate, and ΔP1 and ΔP2 represent the
inflation rates in two countries, then ΔE = ΔP1 –
ΔP2.
The INTEREST RATE PARITY THEORY
suggests that the difference in interest rates
between two countries should equal the forward
premium or discount on the exchange rate. IRP
is based on the idea that interest rate
differentials should be offset by changes in the
exchange rate to ensure that investors receive
similar returns regardless of where they invest
their funds.
According to COVERED INTEREST RATE
THEORY, the exchange rate forward premiums
(discounts) nullify the interest rate differentials
between two sovereigns. In other words,
covered interest rate theory says that the
difference between interest rates in two
countries is nullified by the spot/forward
currency premiums so that the investors could
not earn an arbitrage profit.
UNCOVERED INTEREST RATE THEORY says
that the expected appreciation (or depreciation)
of a particular currency is nullified by lower (or
higher) interest. In the given example of covered
interest rate, the other method that Yahoo Inc.
can implement is to invest the money in dollars
and change it for Euro at the time of payment
after one month. This method is known as
uncovered, as the risk of exchange rate
fluctuation is imminent in such transactions.
The BALANCE OF PAYMENTS APPROACH
considers the relationship between a country’s
current account, capital account, and official
reserves to determine exchange rates. It posits
that a country’s balance of payments influences
its exchange rate. Specifically:
 A current account surplus tends to
appreciate the domestic currency.
 A current account deficit tends to
depreciate the domestic currency.
According to the BOP Approach
CURRENT ACCOUNT SURPLUS: A current
account surplus implies that Country A is
exporting more goods and services than it is
importing.
CAPITAL ACCOUNT AND FINANCIAL
ACCOUNT: The capital account and financial
account represent financial transactions
involving assets and liabilities.
OFFICIAL RESERVE TRANSACTIONS: A
country's central bank often intervenes in the
foreign exchange market to stabilize its currency.
The FISHER EFFECT is an economic theory
that describes the relationship between nominal
interest rates, real interest rates, and inflation. It
is named after American economist Irving
Fisher, who formulated this theory in the early
20th century. The Fisher Effect suggests that
nominal interest rates in an economy move in
tandem with expected changes in the inflation
rate, meaning that higher inflation leads to
higher nominal interest rates.
Here are the key components of the Fisher
Effect:
NOMINAL INTEREST RATE (i): The nominal
interest rate is the interest rate as typically
stated by banks, lenders, and financial
institutions. It represents the actual rate at which
money invested or borrowed grows, without
considering the effects of inflation.
REAL INTEREST RATE (r): The real interest
rate is the nominal interest rate adjusted for
inflation. It reflects the actual purchasing power
of money invested or borrowed. It is calculated
as follows:
Real Interest Rate (r) = Nominal Interest Rate (i)
- Inflation Rate
INFLATION RATE (π): The inflation rate is the
rate at which the general level of prices for
goods and services rises, leading to a decrease
in the purchasing power of a currency.
The Fisher Effect is often expressed as an
equation:
Nominal Interest Rate (i) = Real Interest Rate (r)
+ Inflation Rate (π)
INVESTOR PSYCHOLOGY AND THE
BANDWAGON EFFECT are essential concepts
in the field of behavioral finance. They describe
how emotions, cognitive biases, and social
influences can affect investment decisions and
market behavior.
INVESTOR PSYCHOLOGY refers to the
psychological factors that influence individuals'
investment decisions. It recognizes that
investors are not always rational and that
emotions play a significant role in financial
markets. Some key aspects of investor
psychology include:
Overconfidence: Many investors tend to
overestimate their own knowledge and abilities.
They may believe they have an edge in the
market, leading to excessive trading and
suboptimal investment decisions.
Loss Aversion: Investors often feel the pain of
losses more strongly than the pleasure of gains.
This can lead to risk-averse behavior, such as
holding on to losing investments too long or
selling winning investments too early.
Herd Behavior: Herd behavior occurs when
investors follow the crowd and make investment
decisions based on the actions of others rather
than their own analysis. This behavior can lead
to market bubbles and crashes.
Confirmation Bias: Investors tend to seek
information that confirms their existing beliefs
and ignore information that contradicts them.
This bias can lead to poor decision-making.
Anchoring: Investors may anchor their decisions
to a particular price or value, even when new
information suggests they should adjust their
expectations.
Regret Aversion: Investors often make decisions
to avoid feeling regret, which can lead to
conservative or risk-averse choices.
The BANDWAGON EFFECT is a specific aspect
of investor psychology related to herd behavior.
It occurs when individuals make investment
decisions simply because many others are doing
the same, rather than conducting their own
research or analysis. Key points about the
bandwagon effect include:
Follow-the-Crowd Mentality: Investors may buy
or sell assets because they see others doing so,
regardless of their own beliefs or analysis.
Fear of Missing Out (FOMO): Investors may fear
missing out on potential profits, especially during
market rallies, leading them to join the
bandwagon.
Market Bubbles: The bandwagon effect can
contribute to the formation of market bubbles,
where asset prices become detached from their
intrinsic values due to excessive buying driven
by herd behavior.
Market Crashes: Conversely, the bandwagon
effect can lead to market crashes as panic
selling sets in when the herd suddenly changes
direction.
Peer Pressure and social media: social media
and online forums can amplify the bandwagon
effect by rapidly disseminating information and
influencing investor sentiment.
FREE TRADE based on laissez faire meaning
allowed to do. This philosophy is about letting
people do as they please. It is a trade policy that
removes restrictions on exporting and importing.
It was developed by British economists Adam
Smith and David Ricardo.
WORLD TRADE ORGANIZATION: This is an
organization that encompasses most of the
nations in the world. This organization is
described as free trade but it is not accurate. It
still allows tariffs and government protection. It is
more accurate to call it a system of laws that are
dedicated for fair, open, and undistorted
competition.
FREE TRADE AGREEMENT: A pact between
two or more nations to reduce barriers when
importing and exporting goods. Free trade policy
will reduce or remove tariffs, subsidies, and
prohibitions between trade.
FREE TRADE AREAS
EUROPEAN UNION: Most of the countries in
Europe are borderless when it comes to trading.
The process of trading is smoother because of
other countries adopting euros.
U.S. FREE TRADE AGREEMENT
This involves: North American Free Trade
Agreement - Canada, Mexico, Spain, and the
United States
CENTRAL FREE TRADE AGREEMENT- Most
countries in Central America. This agreement
makes half of the tariff of goods that enters the
United States free and the average import tariff
is 2%
AFRICAN CONTINENTAL FREE TRADE AREA
(AFCFTA): Contains Most countries in Africa.
This is the largest free trade area after the world
trade organization. This agreement's goal is to
successfully remove tariffs in the whole
continent of Africa. The most recent thing that
they did is the Pan-African payment agreement
and settlement system which allows companies
to pay using their local currency.
There are more than 200 varieties of gemstones
in the world. The more popular varieties —
diamonds, rubies, emeralds, and sapphires —
fetch prices that reflect their high value. On the
lower spectrum are affordable gemstones like
peridot or citrine. What makes one gemstone
more valuable than others? Factors like the
gemstone type, color, cut, and clarity all weigh
into the gem's overall value.
FACTORS THAT INFLUENCE A GEMSTONE'S
VALUE
The type of gemstone – Precious gemstones
like ruby or emerald will be more valuable and
expensive than quartz or amethyst.
COLORED VS. COLORLESS GEMS: Color is
perhaps the most important factor of pricing a
gem because the most desired are deeply
saturated and vivid. If a gem is lighter in color,
it'll typically be less expensive. Pricing
gemstones by color is tricky because the
spectrum is so broad. When valuing a
gemstone, we look at the hue, tone, and
saturation of the color. There's a multitude of
variances between gems and their respective
colors, but typically, the deeper and more vivid
the color, the higher the value.
CLARITY: The more inclusions (flaws) that a
gemstone has, the lower the value. Gemstones
that are eye-clean, meaning there are no visible
flaws, exhibit the best brilliance, and thus,
demand the highest price. Diamonds with
excellent clarity are most often expensive
because of their popularity and the sparkle they
exhibit.
CARAT WEIGHT: Despite popular belief, carat
weight is not the most important factor of
gemstone value. With rare or precious
gemstones, the higher the carats, the more
expensive. However, lower-value gems like
quartz can be fairly heavy and affordable.
Sometimes a heavier carat weight works against
a gemstone if there are visible inclusions. In this
case, you could get a lower-grade diamond or
sapphire with a higher carat weight for less than
a higher-quality, smaller stone.
CUT AND POLISH: A skilled gem cutter will
remove any weight that contains inclusions, and
leave only the cream of the crop. Ultimately, the
facets (cuts) of the gem should be clean and
well-polished to be valuable.
SHAPE: A gem's shape has a heavy influence
on its value because it signifies what's in
demand. Round brilliant-cut gemstones are
always the most valuable because they take
precision to retain the best parts of the stone
without losing excessive weight.
TREATMENTS OR ENHANCEMENTS: As a
general rule of thumb, treated gems always
have a lower value than natural gemstones of
equal size, color, and clarity. That said, most
gemstones are treated to enhance their
appearance. Untreated gemstones of the
highest quality are typically far too expensive for
most buyers, unless you choose a lower-value
gemstone, like garnet or spinel.
ORIGIN: The quality of a gemstone isn't always
contingent upon its origin, although strategic
marketing will lead buyers to believe otherwise.
POPULARITY: Prices of gemstones are only
worth what the market is willing to pay for them,
and that's where popularity plays a large role. A
gemstone trending now, for example, pink
diamonds, is going to be more valuable because
it's in demand. Unfortunately, trends come and
go, and the value of a gemstone will heavily
relate to its popularity in the market.

SUPPLY CHAIN: Buying gemstones online is a

great way to cut out overhead costs of buying
from a jeweler. In many cases, the more hands
the gem touches, the higher the price will be to
accommodate the brokerage and distribution
fees.