Concept

The world economy or the global economy is the economy of all humans of the world, referring to
the global economic system which includes all economic activities which are conducted both within
and between nations,including production, consumption, economic management, work in general,
exchange of financial values and trade of goods and services.
A global economy is an economic interdependence established between the most influential countries that
drives the worldwide economic environment. It is also the aggregate economic output, movement and
influence of all countries.
A global economy is an economic interdependence established between the most influential countries that
drives the worldwide economic environment. It is also the aggregate economic output, movement and
influence of all countries.
Concept of Globalization
• Globalization means the speedup of movements and exchanges (of
human beings, goods, and services, capital, technologies or cultural
practices) all over the planet. One of the effects of globalization is that it
promotes and increases interactions between different regions and
populations around the globe.
• According to WHO, globalization can be defined as ” the increased
interconnectedness and interdependence of peoples and countries. It is
generally understood to include two inter-related elements: the opening
of international borders to increasingly fast flows of goods, services,
finance, people and ideas; and the changes in institutions and policies at
national and international levels that facilitate or promote such flows.”
Regional integration
Trading blocs
Role of Regional integration and trading
blocs
• 1. Low cost of trade
• 2.employment opportunities
• 3. Economies of scale
• 4.Economic growth
• 5.Protection of domestic enterprises
Problems /issuses of Foreign Trade in Nepal
• Problems of Foreign Trade in Nepal There are several problems with Nepal's foreign trade. Firstly, it is a landlocked country and it compelled to depend
with India for most of the foreign trade. Likewise, being a developing country, it produces low quality goods with a high cost of production, and capital
formation is inefficient and government policy is antiquated. Similarly, most of the geography is mountainous and remote which is not in favor of
foreign trade in Nepal. Thus, foreign trade in Nepal has not been able to make its satisfactory progress. Some of the main problems of foreign trade in
Nepal have been highlighted in the following points
Land-locked: Geographically, Nepal is a land-locked, mountainous and rugged structured country, which is one of the
biggest bottlenecks in Nepalese foreign trade expansion. As a land-locked country, it has to import/export through
India/China which by itself raises the cost of commercial transactions not only in transportation costs, but on merchandise
shifting from one mode of transportation to another. Also, border crossing fees and transit time among other issues are
unfavorable for foreign trade in Nepal.
 Open Border: Free flow of goods due to open border between Nepal and India is also a serious problem for Nepalese
products. It is because Indian and Chinese products are available cheaply in Nepalese market and Nepalese goods are
relatively costly. Likewise, owing to smuggling practices, the illegal traders are getting advantage of imports and exports due
to open boarder. Nepal uses only one trade route with overseas countries other than India and China. Although Nepal can
use other trade routes too, but no any action has been forwarded yet. 
Increasing import and decreasing export: Nepal's export mainly constitutes raw material which gets little price. On the
other hand, Nepal imports the manufactured goods which has high price. Nepalese domestic industries cannot produce
enough goods for Nepalese growing population. So Nepal has increasing import and decreasing export
Lack of diversification: Although several policies have been made in Nepal for the diversification of production and trade of
goods, the trend is that most of the foreign trade is directed to India. It might be due to the geographical position of India
that it has surrounded Nepal by three sides, 150 Rupantaran : A Multidisciplinary Journal, Vol. IV, 2020 east, west, and
south. Among the overseas countries Nepal has limited trade of only certain products to certain countries like America,
Germany, Japan and other Asian countries. 
• . High cost of production: Nepal is a developing country which has not modern
technology. Lack of modern technology goods are costly produced using the costly
imported raw materials Likewise, because of the lack of skilled manpower, the
product of Nepal is of high cost and of low quality which cannot compete to foreign
goods. Though the agricultural is the fundamental aspect of the Nepalese economy,
it has been extremely disappointing. Transit and transportation cost is too high and
there is no effective rural- urban linkages practices too.
 Lack of capital: Capital is most important thing for foreign trade. There is not
expansion of money market and capital market in Nepal. Therefore the traders
cannot get credit facilities. Due to this lack of credit facilities, importer and exporter
cannot expand foreign trade
• A fixed exchange rate
• , often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or
pegged by a monetary authority against the value of another currency, a basket of other currencies, or another
measure of value, such as gold. A fixed exchange rate system can also be used to control the behavior of a
currency, such as by limiting rates of inflation. However, in doing so, the pegged currency is then controlled by
its reference value. As such, when the reference value rises or falls, it then follows that the value(s) of any
currencies pegged to it will also rise and fall in relation to other currencies and commodities with which the
pegged currency can be traded. In other words, a pegged currency is dependent on its reference value to dictate
how its current worth is defined at any given time
Definition: Exchange rate is the price of one currency in terms of another currency
Determination of equilibrium exchange rate under fixed exchange rate
system
• A fixed exchange rate system is one where the value of the
exchange rate is fixed to another currency. This means that the
government have to intervene in the foreign exchange market
to maintain the fixed rate. The equilibrium exchange rate may
be either above or below the fixed rate. In Figure 1 below, the
equilibrium is above the fixed rate. There is a shortage of the
national currency at the fixed rate. This would normally force
the equilibrium exchange rate upwards, but the rate is fixed
and so cannot be allowed to move. To keep the exchange rate
at the fixed rate the government will need to intervene. They
will need to sell their own currency from their foreign exchange
reserves and buy overseas currencies instead. This has the
effect of shifting the supply curve to S2 and as a result, their
foreign currency holdings will rise.
Figure 1 Fixed exchange rate - equilibrium
above the fixed rate
• In Figure 2, the opposite is true - the equilibrium rate is
below the fixed rate. This means that there is a surplus
of the national currency. The government will need to
buy this surplus if they are to prevent the currency from
falling - in other words keep it at the fixed rate. When
they buy the currency they will be selling from their
foreign currency reserves and so these will fall, but the
demand for domestic currency will rise.

Figure 2 Equilibrium below the fixed rate

• A flexible exchange-rate system is a monetary system that
allows the exchange rate to be determined by supply and
demand. Every currency area must decide what type of
exchange rate arrangement to maintain. Between permanently
fixed and completely flexible however some take
heterogeneous approaches.
• The value of 1 United States dollar is equal to 0.78 Pound
sterling as on a particular day but a day before the same was
0.76-pound sterling which might increase or decrease the next
day based on the demand and supply forces prevailing in the
market.
determinationof equilibrium exchange rate under flexible exchange rate
system
• Under flexible exchange rate system, the exchange rate is determined by the forces of
market demand and market supply. Here, the central banks do not intervene in the
foreign exchange market.
• In the given diagram, demand and supply of currency is measured
along OX axis and rate of exchange is measured along OY axis. D is
demand curve and S is the supply curve. The demand and supply
curves of foreign exchange have intersected at point E where the
exchange rate (R) is determined. If the rate of exchange increases from
OR to OR1, the supply of foreign currency exceeds its demand
causing decrease in rate of exchange. On the other hand, if the
exchange rate decreases from OR to OR2, the demand for foreign
currency exceeds the supply of foreign currency which leads to
increase in rate of exchange later.
Balance of payments(BOP)
• Types of Balance of Payment
• The balance of payment is divided into three types:
• Current account: This account scans all the incoming and outgoing of goods and
services between countries. All the payments made for raw materials and constructed
goods are covered under this account. Few other deliveries that are included in this
category are from tourism, engineering, stocks, business services, transportation, and
royalties from licenses and copyrights. All these combine together to make a BOP of a
country.
• Capital account: Capital transactions like purchase and sale of assets (non-financial)
like lands and properties are monitored under this account. This account also records the
flow of taxes, acquisition, and sale of fixed assets by immigrants moving into the
different country. The shortage or excess in the current account is governed by the
finance from the capital account and vice versa.
• Finance account: The funds that flow to and from the other countries through
investments like real estate, foreign direct investments, business enterprises, etc., is
recorded in this account. This account calculates the foreign proprietor of domestic
assets and domestic proprietor of foreign assets, and analyses if it is acquiring or selling
more assets like stocks, gold, equity, etc.
• Importance of Balance of Payment
• A balance of payment is an essential document or transaction in the finance
department as it gives the status of a country and its economy. The importance of the
balance of payment can be calculated from the following points:
• It examines the transaction of all the exports and imports of goods and services for a
given period.
• It helps the government to analyse the potential of a particular industry export
growth and formulate policy to support that growth.
• It gives the government a broad perspective on a different range of import and
export tariffs. The government then takes measures to increase and decrease the tax to
discourage import and encourage export, respectively, and be self-sufficient.
• If the economy urges support in the mode of import, the government plans according
to the BOP, and divert the cash flow and technology to the unfavourable sector of the
economy, and seek future growth.
• The balance of payment also indicates the government to detect the state of the
economy, and plan expansion. Monetary and fiscal policy are established on the basis
of balance of payment status of the country.
• A foreign direct investment is an investment in the form of a
controlling ownership in a business in one country by an entity
based in another country. It is thus distinguished from a foreign
portfolio investment by a notion of direct control.
• Foreign direct investment (FDI) is an investment made by a company
or an individual in one country into business interests located in
another country. FDI is an important driver of economic growth. Any
investment from an individual or firm that is located in a foreign
country into a country is called Foreign Direct Investment.
FDI in Nepal
• Foreign investment commitments in Nepal continued to remain in negative territory in the
first three months of the current fiscal year beginning mid-July, largely due to the Covid-19
pandemic and According to the Department of Industry, foreign direct investment (FDI)
dropped 16.14 percent year-on-year in the first quarter of the current fiscal year 2021-22.
• Government officials said weak business investment and persisting political uncertainty
made potential investors wary of putting their money in Nepal.
• The department's statistics show that Nepal received 99 investment pledges worth Rs16.26
billion in the first quarter of the current fiscal year.
• During the same period of the last fiscal year 2020-21, Nepal had received investment
pledges amounting to Rs32.20 billion.
•

.
• Unless there is political stability, foreign investors will not be willing to invest
in a country like Nepal. There is policy uncertainty too due to frequent changes
in government,” said Gunakar Bhatta, executive director of Nepal Rastra Bank,
the central bank.
• Foreign direct investment from the United States in Nepal has been declining
because of lack of a compensation law which is the number one priority for
American investors, officials said.
• “When the state fails to give protection to brands, investors will have doubts
about the security of their investment in the country.”
• FDI inflow in the country is below 1 percent of GDP which is low, said Bhatta,
adding that there might be a need for institutional reform to attract investors
into comparative advantage areas like hydropower and infrastructure, and
among other sectors.
• “It’s time to look for an alternative modality to attract foreign investors. One
modality could be the issuance of debentures in the international market,” he
said.
• “The government can experiment by issuing 20-30 percent debentures of big
projects in the international market to attract potential investors.”
• According to Bhatta, another area that Nepal is lagging behind in is promoting economic diplomacy.
• "Nepal’s market is small, but in its south and north, there are big neighbours—China and India. We should be able to
attract investors who have the ability to export goods to these giant neighbours.”
• As per the department, China tops the list of foreign investment pledges in Nepal, with commitments in 87 projects worth
Rs15.56 billion in the first three months of the current fiscal year, down slightly from Rs16.12 billion in the same period last
year.
• In contrast, investment pledges from India have nearly tripled. Nepal received commitments from Indian investors for four
different projects amounting to Rs290 million during the review period. In the same period in the last fiscal year, pledges
totalled Rs100 million for two projects.
• Despite the introduction of new regulations under the Foreign Investment and Technology Transfer Act (FITTA) last
January, foreign direct investment has been declining.
• In a bid to facilitate foreign direct investment, Nepal Rastra Bank also rolled out the Foreign Investment and Loan
Management Bylaw 2021 which freed foreign investors from having to take the central bank's prior approval to transfer
foreign currency to Nepal after getting approval from the foreign investment sanctioning body.
• “The Covid-19 pandemic has devastated the global economy. In such a scenario, Nepal’s internal politics, which has largely
remained unstable, added to the disinclination,” said Bhatta.
• Before the regulation was enforced, FDI stocks, or the level of direct investment in Nepal, increased by 8.5 percent to
Rs198.52 billion at the end of fiscal 2019-20, according to a study conducted by Nepal Rastra Bank.
• Nepal's FDI stocks rose moderately in 2019-20 even as the coronavirus pandemic spread havoc across the world, indicating
that moves to attract capital were kicking in, the report said.
• There is a gap between FDI approval and actual FDI inflows, the central bank survey report showed. FDI approval may
indicate an intended investment (the approved investment may not actually take place) or there may be significant time
lags between approvals and actual investments, according to the report.
 What is meant by foreign employment?
Foreign employment refers to being employed in a different country than that of a person's origin .

Going from one country to another country for job and to earn money is called foreign
employment. People of Nepal go to different countries of the world for jobs and earning.
It uplifts the life standard of the people and has become an important source of earning
foreign currency.
 Advantages of Foreign employment
• People who work abroad live with high standard and their lifestyle changes to a greater extent. Life in other
countries is altogether different than the home country. If we move from one place to another, we experience the
difference in all the things, be it culture, style of living, food habits, language, atmosphere, ambience, likes, dislikes
and many other things that at times remain unnoticed. This is one of the first
advantages of working in a developed country.
• The people who choose to work abroad experience different religious as well as working cultures. They get to learn
a lot about different cultures. It enhances their knowledge and also makes them aware of their surroundings and
the whole work.
• Working abroad also helps a person to travel. One gets to see the whole world along with doing work. It can also act
as refreshments from work for a few days and can make a person more excited about moving to another country for
work
• Moving from one country to another helps a person to know diverse languages. Apart from the mother tongue, one
learns German, French, American English and many others according to the country one lives for the work
• It is heard that the people in abroad has the best quality of working in a team. A person learns how to work in a
team and also gets to know the criteria and methods by which they work. One gets to learn a lot by visualizing as
well as working among them in an office.
• One gets to earn a lot, thus building a strong bank balance. A person if moves from India to America, will earn in
dollars and as the value of their currency is more, a person will earn more, this will help in the near future.
• A person is able to improve his communicative skills as he or she comes across language barriers and many cultural
differences. By dealing with all such barriers one learns the skill of communicating effectively with people of
different cultures and languages
Disadvantages of Foreign Employment
• In order to move abroad and work there, the first and foremost thing required is a hefty amount of money. If you cannot
spend a lot of money, you cannot think of working abroad and settling there. So, this becomes an initial hindrance to work
overseas. This is the first disadvantage of going abroad.
• A person if work overseas have to move from one country to another and this way a person is not able to stick to one thing.
Such type of fluctuation in work is a great barrier and diverts one’s mind, affecting the work to a larger extent
• As one has to move frequently from one place to another, one may feel lonely as the friend circle and social life is affected
on the whole. Missing the old friends and family i.e. feeling homesick badly is the common thing. One has to fight all such
emotions to move ahead. This is one of the biggest disadvantages of going abroad.

• As every country has it’s own culture, beliefs, and values, understanding all those immediately is very difficult. So suffering
from cultural shock, the difference in the behaviour pattern of people from different countries is a great disadvantage of
working abroad.
• One may get a lower-level job or can even get menial work to do in the initial stages in case the experience in the homeland
is not good enough. So, for such circumstances, one has to be prepared and be strong enough to handle a difficult
situation in case a person comes through.
• It’s not sure that you will get the best condition to live in as every country does not provide an employee with a good
working condition. It will depend highly on where you choose to live for your work.
• You never know what kind of people you will come across. Rude or polite, whatever natured a person is, one has to tackle
in a smart way as you are working overseas. One must learn the custom and habit of people in the country you are moving
to. “When in Rome, do as Romans do” is a great tip for people working overseas.
 The amount received from foreign employment is called remittance.
A remittance is a payment of money that is transferred to another party. ... However, the term is most often used nowadays to describe a
sum of money sent by someone working abroad to his or her family back home. The term is derived from the word remit, which means to send
back.
• Remittance is derived from the word 'remit' which means 'to send back'. Remittance refers to money that is sent or transferred to
another party, usually overseas. Remittances can be sent via a wire transfer, electronic payment system, mail, draft, or cheque.
•
• Remittances can be used for any type of payment including invoices for business purposes or other obligations like personal transfers
made to family and friends.
• Individual householders are directly benefited from the remittance as they are getting money from another country. Remittance
increases the recipient household’s resources, smooth consumption, provide working capital. In fact, remittance can be taken as one
of the poverty-reducing factors.
• The World Bank study suggests that remittance has helped to decrease poverty in many countries.
• Long term growth potential depends on how remittance is used. If remittance money is channeled to productive uses of investment
then it may stimulate in the economic growth of the country. Most studies show that the large proportion of the remittance is used for
human capital development such as education, health care, nutrition. It has been proved that there is a long-term benefit of human
capital development
• Remittance increase the low-income household to be involved in financial activities. Which ultimately leads to formal financial
services. Remittance promotes financial deepening.
• Remittance is less volatile than most capital sources of foreign exchange earnings, In countries affected by political conflict, they often
provide an economic lifeline to the poor.
• Knowledge and skills
• International relations
• Increase in literacy rate
• Poverty alleviation

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Disadvantage
1. The remittance, especially from the skilled manpower is brain-drain which means due to the export of skilled manpower, country face the shortage of skilled manpower.
Which ultimately affect the entire development of the country.
2. If the remittance is large, the recipient country could face the risk of real exchange rate appreciation. It may make it’s economy less competitive internationally.
3. Remittance also creates dependency.
4. Migrant workers have to be far away from their family.
• Decrease in production
• Impact on relationship
• Continuous price rise

• Modes and instrument used in remittance business

• SWIFT (Society for Worldwide Interbank Financial Telecommunication)
• Cheque
• Draft
• Card – debit and credit
• Telex
• Demand Draft
• Fax Transfer
• Tested Email
• Mobile Banking/Email Banking/Online Banking
• Letter of Credit (LC)
• Cheque clearing (Bills collection)
• Travellers cheque