Global Markets

1. The Global Economy
Foreign goods are central to the living
standards of all nations
• Basic Theories of world TRADE
Absolute
Comparative
Competitive

2. Absolute Advantage
Do the Production that gives more advantage
(Selling the Best one)
E.g. - Vietnam and Germany
Vietnam workers can produce 400 Machines or 1600
Tomatoes
Germany workers can Produce 500 Machines or 500
tomatoes
Therefore Vietnam is low-cost Producer for Tomatoes and
Germany is Low-Cost Producer For Machines
Vietnam Produce tomatoes and should export them to
Germany and Germany Produce Machines and should
export them to Vietnam

3. Comparative Advantage
• Do the Production that most suitable
even not profitable
(Trade Can occur between two countries even one of
the countries has no absolute Advantage)
E.g. – Page no 25 -26
Vietnam and Germany

4. Competitive Advantage
Competitive Advantage of an industry depend on ,
• The elements of the production
• The nature of domestic demand
• The presence of appropriate suppliers or related industry
• The condition of the country (How companies are Created,
organized and managed)
• nature of domestic rivalry

5. Global Out Sourcing
Global outsourcing is enabling business
without barriers in a borderless world.
As enterprises think global, their
outsourcing models have changed to
follow suit.
(Outsource the workers)
E.g.-
Yahoo had its servers moved to India at one point.
Samsung televisions and copiers are imported and
exported all over the world.

6. Balance of Payments
• An accounting record of the transaction between the
residents of one country and the residents of the rest
of the world over a given period of time or the
difference in total value between payments into and
out of a country over a period
(What are the factors will cause currency’s International
Value to Change)

7. Exchange Rates
• Measures the value of one currency in terms of another
currency
US $ 1 = 0.5 Euro
One Currency value CanAppreciate or Depreciate
against another

8. Causes of Exchange Rate
Movements
• Differential in Inflation
a country with a consistently lower inflation rate
exhibits a rising currency value and Those countries with
higher inflation typically see depreciation in their
currency's value.
• Differential in Interest rates
By manipulating interest rates, central banks exert
influence over both inflation and exchange rates.

9. • Current – Account Deficits
The current account is the balance of trade between a
country and its trading partners
A deficit in the current account shows a country is
importing goods and services more than it is exporting
them
• Public Dept.
Nations with large public deficits and debts are less
attractive to foreign investors. This is because a large
debt encourages more inflation, and higher inflation
translates into lower currency value.

10. • Terms Of trade
A country's terms of trade is a ratio comparing export
prices to import prices
(E.g.-If the price of a country's exports rises by a
greater rate than that of its imports, its terms of trade
have favorably improved)
• Political Stability and Economic Performance
investors inevitably seek out stable countries with
strong economic performance in which to invest
their capital.
Watch- http://www.investopedia.com/video/play/main-
factors-influence-exchange-rates

11. Economic and Monetary
Stability
• International Monetary Fund (IMF)
Prevention of economic instability in emerging Markets
• World Bank
Long- Term Loans to Developing Countries
• Group of 7 (8)
USA, Japan, Germany, France, Britain, Italy,
Canada,(Russia) – Members work together informally to
help stabilize the world economy and reduce extreme
disruption

12. Protectionism and Trade
Restriction
• Protectionism
Government actions and policies that restrict
or restrain international trade, often done
with the intent of protecting local businesses
and jobs from foreign competition
import tariffs, quotas, subsidies
or tax cuts to local businesses and
direct state intervention.

13. General Agreement on
tariffs and Trade (GATT)
• multilateral agreement regulating international trade
• its purpose was the "substantial reduction of tariffs
and other trade barriers and the elimination of
preferences, on a reciprocal and mutually
advantageous basis”
• GATT was signed by 23 nations in Geneva on October
30, 1947 and took effect on January 1, 1948

14. World Trade Organization
(WTO)
• WTO is the Global WATCHDOG for free trade
• Only global international organization dealing with the
rules of trade between nations
• The goal is to help producers of goods and services,
exporters, and importers conduct their business.

15. Major types of integration
• Free Trade Areas
• Custom Unions
• Common Markets
• Monetary Unions

16. Keshan De Silva
Postgraduate Diploma in
Marketing – Stage 03
Sri Lanka Institute Of Marketing