INTERNATIONAL ECONOMICS

Presented by: Erlyn Joy Magat Israel Mangalonzo Clavelle Hershey Mae Orca Estrelita Vivar

INTERNATIONAL ECONOMICS
International Economicsis concerned with the effects upon economic activity of international differences in productive resources and consumer preferences and the institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration. economies of scale are benefits from bulk buying

 International trade -

is exchange of capital, goods, and services across international borders or territories.

Theory of International Trade

Mercantilism (Thomas Munn) Theory of Absolute Advantages (Adam Smith) Theory of Comparative Advantages (David Ricardo) Heckscher- Ohlin (HO) Theory

MERCANTILISM
For a nation to be rich and powerful, it needs to export more and import less. The more gold a nation had, the richer and powerful it was

THEORY OF ABSOLUTE ADVANTAGE

In free trade, each nation could specialize in the production of those commodities in which it had an absolute advantage, and import those commodities in which it had absolute disadvantage.

THEORY OF COMPARATIVE ADVANTAGE

Even if a nation had a absolute disadvantage in the production of both commodities with respect to other nations, mutually advantageous trade could still take place.

HECKSCHER- OHLIN (HO) THEORY

Each nation will export the commodity intensive in its relative abundance and cheap factor, and import the commodity intensive in its relatively scarcity and expensive factor.

TYPES OF TRADE PROTECTION

Tariff- this is a tax on import products. It raises the costs to foreign suppliers and reduces their revenues thereby reducing the import spending of the country.
Quota- this is a fixed limit placed on the quantity of imports allowed into a country..

 Government Regulations- these are forms of protection arising from health and safety standards and preservation of the environment
Exchange Controls- the Bangko Sentral ng Pilipinas restricts the sale dollars (and other forms of currency) to importers. Only those importers who have permits are allowed to obtain dollars due to the necessity of the product they are importing.

ARGUMENTS FOR THE IMPOSITION OF TARIFF PROTECTION

Infant Industry Argument- this arguments asserts that a temporary imposition of tariff will cut down imports while local industries learn how to produce at lw enough costs to compete without the help of a tariff Higher Standard of Living Argument- a tariff will promote high wages because local industries cannot provide competition with foreign competitors and pay high wages at the same time.

 Increased Employment Argument- it is also contended that tariff creates employment opportunities for labor. Self-sufficiency Argument- this argument is advocated to secure economic independence or national self-sufficiency.

Foreign Exchange
Foreign Exchange Market- is the organizational framework wherein individuals, businesses, and banks buy and sell foreign exchange. Foreign Exchange Rate- is the price of the Philippine peso versus other currencies. The exchange rate is made the same in all markets by arbitrage. Foreign Exchange Arbitrage- is the buying of a currency when its price is low and selling it when it is high.

 Currency Depreciation- when the value of a currency declines because of market forces. Currency devaluation- when the value of the currency de clines due to legislation.

Flexible vs. Pegged Exchange Rate

Floating Exchange Rate- if the government, particularly the Central Bank, does not intervene in the market to defend the currency against its depreciation.

Two types of Flexible Exchange Rates Manage Float- the BSP will intervene in the market to smooth out short- run fluctuations in the foreign exchange market without affecting the long- run movement of the exchange rate.
Dirty Float- a country will artificially keep their currency low to induce their exports.

Fixed Exchange Rate System the CB allows the exchange rate to move within a range of values, and permits that rate to fluctuate in that range. Two Types of Fixed Exchange rate Adjustable Peg System the CB will setup a maximum and minimum value of currency. Crawling Peg System the pegged exchange rate is changed often according to discretion of the CB or some economic indicators.

DEMAND AND SUPPLY IN THE FOREIGN EXCHANGE MARKET

A case of an Increased Demand for the US Dollars

A Case of an Increased Supply for the US Dollars

The Balance Payment

Balance of Payment- is a summary of information about the countrys exports, imports, earnings by domestic residents on properties located abroad or outside the country, earnings on domestic assets owned by foreign residents, international capital movements between countries, and official transaction by Bangko Sentral ng Pilipinas and governments.

Government are trying to keep track records or data of all money and credit that flows into or out of their countries so that they can predict what is about to happen, such as:
To their exchange rate To their credit rating from the IMF and WB To their stocks of international reserves.

 Exports- sales of goods and services to people and firms of other countries Imports- purchases of goods and services from people and firms of other countries. Net Exports- the balance of international trade, equals export minus imports. GDP= C + I + G (X-M)

DETAILS OF BALANCE PAYMENT

The balance payment is listed in four sections:

I. The Current- Account Balance this summarizes the difference between total exports of goods and services and the total imports. Current account deficit- export of goods and services fall short of imports of goods and services plus net unilateral transfer.

II. The Capital Account this records all transaction pertaining to private foreign investments, grants and loans, such as capital movements. III. Statistical Discrepancynet sum of all unrecorded transactions. IV. Official Monetary Reserve or Cash Account these are assets of Central Bank in the form of gold reserves, currency reserves and international paper gold or SDRs.

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