Fluent Essays

OverviewKeep in mind that your discussion forum postings will likely be seen by other members of the course. Care should be taken when determining what to post.The objective of this assignment is to introduce students to issues covered in the business press that are related to the topics discussed in this course. For this assignment students will find and review an article (related to the chapter topic of the week) appearing in business periodicals in the past 6 months. Each student will respond to at least two articles from those posted but not their own (this is the discussion part of your grade). Since there are multiple chapters covered each week it can be an article on any of the chapters’ material. This is a weekly assignment. The original article should be posted to Canvas no later than Wednesday (11:59 pm) of each week so comments can be made before the end of the week (Sunday 11:59 pm) and no duplicates are allowed (first come first served so to speak).Suggested Business Press TitlesBusinessWeekFinancial TimesThe Wall Street JournalThe Wall Street Journal AsiaForbesFortuneCEO MagazineThe EconomistEntrepreneur MagazineInc. MagazineThe Power Point attached are the three chapters covered in this week. You can choose the article related to any of the chapters. ipptchap09_ei_accessible.pptx ipptchap10_ei_accessible__1_.pptx ipptchap11_ei_accessible__1_.pptx Unformatted Attachment Preview Chapter 9 Regional Economic Integration ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. What Is Regional Economic Integration? • Regional economic integration - agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other • Question: Do regional trade agreements promote free trade? – In theory, yes, but the world may be moving toward a situation in which a number of regional trade blocks compete against each other ©McGraw-Hill Education. What Are The Levels Of Regional Economic Integration? (1 of 4) 1. A free trade area eliminates all barriers to the trade of goods and services among member countries – European Free Trade Association (EFTA) - Norway, Iceland, Liechtenstein, and Switzerland – North American Free Trade Agreement (NAFTA) - U.S., Canada, and Mexico ©McGraw-Hill Education. What Are The Levels Of Regional Economic Integration? (2 of 4) 2. A customs union eliminates trade barriers between member countries and adopts a common external trade policy – Andean Community (Bolivia, Colombia, Ecuador, and Peru) 3. A common market has no barriers to trade between member countries, a common external trade policy, and the free movement of the factors of production – Mercosur (Brazil, Argentina, Paraguay, and Uruguay) ©McGraw-Hill Education. What Are The Levels Of Regional Economic Integration? (3 of 4) 4. An economic union has the free flow of products and factors of production between members, a common external trade policy, a common currency, a harmonized tax rate, and a common monetary and fiscal policy – European Union (EU) 5. A political union involves a central political apparatus that coordinates the economic, social, and foreign policy of member states – the EU is headed toward at least partial political union, and the U.S. is an example of even closer political union ©McGraw-Hill Education. What Are The Levels Of Regional Economic Integration? (4 of 4) Levels of Economic Integration ©McGraw-Hill Education. Why Should Countries Integrate Their Economies? • All countries gain from free trade and investment – regional economic integration is an attempt to exploit the gains from free trade and investment • Linking countries together, making them more dependent on each other – creates incentives for political cooperation and reduces the likelihood of violent conflict – gives countries greater political clout when dealing with other nations ©McGraw-Hill Education. What Limits Efforts At Integration? • Economic integration can be difficult because – while a nation as a whole may benefit from a regional free trade agreement, certain groups may lose – it implies a loss of national sovereignty • Regional economic integration is only beneficial if the amount of trade it creates exceeds the amount it diverts – trade creation occurs when low cost producers within the free trade area replace high cost domestic producers – trade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers ©McGraw-Hill Education. What Is The Status Of Regional Economic Integration In Europe? • Europe has two trade blocs 1. The European Union (EU) with 27 members 2. The European Free Trade Area (EFTA) with 4 members • The EU is seen as the world’s next economic and political superpower ©McGraw-Hill Education. What Is The Status Of Regional Economic Integration In Europe? Member States of The European Union in 2013 ©McGraw-Hill Education. What Is The European Union? (1 of 2) • The devastation of two world wars on Western Europe prompted the formation of the EU – Members wanted lasting peace and to hold their own on the world’s political and economic stage • Forerunner was the European Coal and Steel Community (1951) • The European Economic Community (1957) was formed at the Treaty of Rome with the goal of becoming a common market ©McGraw-Hill Education. What Is The European Union? (2 of 2) The Single European Act (1987) – committed the EC countries to work toward establishment of a single market by December 31, 1992 – was born out of frustration among EC members that the community was not living up to its promise – provided the impetus for the restructuring of substantial sections of European industry allowing for faster economic growth than would otherwise have been the case ©McGraw-Hill Education. What Is The Political Structure Of The European Union? The main institutions in the EU include: 1. The European Council - the ultimate controlling authority within the EU 2. The European Commission - responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states 3. The European Parliament - debates legislation proposed by the commission and forwarded to it by the council 4. The Court of Justice - the supreme appeals court for EU law ©McGraw-Hill Education. What Is The Euro? • The Maastricht Treaty committed the EU to adopt a single currency – created the second largest currency zone in the world after that of the U.S. dollar – used by 17 of the 27 member states – Britain, Denmark, and Sweden opted out • since its establishment January 1, 1999, the euro has had a volatile trading history with the U.S. dollar ©McGraw-Hill Education. Is The Euro A Good Thing? • Benefits of the euro – savings from having to handle one currency, rather than many – it is easier to compare prices across Europe, so firms are forced to be more competitive – gives a strong boost to the development of highly liquid pan-European capital market – increases the range of investment options open both to individuals and institutions • Costs of the euro – loss of control over national monetary policy – EU is not an optimal currency area ©McGraw-Hill Education. Should The EU Continue To Expand? • Many countries have applied for EU membership • Ten countries joined in 2004 expanding the EU to 25 states • In 2007, Bulgaria and Romania joined bringing membership to 27 countries • Turkey has been denied full membership because of concerns over human rights ©McGraw-Hill Education. What Is The Status Of Economic Integration In The Americas? (1 of 2) • There is a move toward greater regional economic integration in the Americas • The biggest effort is the North American Free Trade Area (NAFTA) • Other efforts include the Andean Community and Mercosur • A hemisphere-wide Free Trade of the Americas is under discussion ©McGraw-Hill Education. What Is The Status Of Economic Integration In The Americas? (2 of 2) Economic Integration in the Americas ©McGraw-Hill Education. What Is The North American Free Trade Agreement? • The North American Free Trade Area includes the United States, Canada, and Mexico – abolished tariffs on 99\% of the goods traded between members – removed barriers on the cross-border flow of services – protects intellectual property rights – removes most restrictions on FDI between members – allows each country to apply its own environmental standards – establishes two commissions to impose fines and remove trade privileges when environmental standards or legislation involving health and safety, minimum wages, or child labor are ignored ©McGraw-Hill Education. Is The North American Free Trade Area Beneficial? (1 of 2) • Supporters of NAFTA claimed that • Mexico would benefit – from increased jobs as low cost production moves south and will see more rapid economic growth as a result • the U.S. and Canada would benefit from – access to a large and increasingly prosperous market – the lower prices for consumers from goods produced in Mexico – low cost labor and the ability to be more competitive on world markets – increased imports by Mexico ©McGraw-Hill Education. Is The North American Free Trade Area Beneficial? (2 of 2) • Critics of NAFTA claimed that – jobs would be lost and wage levels would decline in the U.S. and Canada – pollution would increase due to Mexicos more lax standards – Mexico would lose its sovereignty ©McGraw-Hill Education. Who Was Right? • Research indicates that NAFTA’s early impact was subtle, and both advocates and detractors may have been guilty of exaggeration • NAFTA is credited with helping create increased political stability in Mexico • Other Latin American countries would like to join NAFTA ©McGraw-Hill Education. Think Like A Manager The establishment of the North American Free Trade Agreement (NAFTA) in 1994 was an important, if controversial, moment in the economic histories of Canada, the United States, and Mexico. As the head of a major industrial machinery manufacturer in the United States, would you have welcomed economic integration with Canada and Mexico? What advantages or disadvantages would you expect to experience? How might your business operations be different today if NAFTA had not been passed? Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 9-24 What Is The Andean Community? • The Andean Pact – formed in 1969 using the EU model – had more or less failed by the mid-1980s – was re-launched in 1990, and now operates as a customs union – renamed the Andean Community in 1997 – signed an agreement in 2003 with Mercosur to restart negotiations towards the creation of a free trade area ©McGraw-Hill Education. What Is Mercosur? • Mercosur – originated in 1988 as a free trade pact between Brazil and Argentina – was expanded in 1990 to include Paraguay and Uruguay and in 2005 with the addition of Venezuela – may be diverting trade rather than creating trade, and local firms are investing in industries that are not competitive on a worldwide basis – initially made progress on reducing trade barriers between member states, but more recently efforts have stalled ©McGraw-Hill Education. What Is The Central American Trade Agreement And CARICOM? • There are two other trade pacts in the Americas – the Central American Trade Agreement – (CAFTA, 2005) to lower trade barriers between the U.S. and members – CARICOM (1973) - to establish a customs union • Neither pact has achieved its goals yet • In 2006, six CARICOM members formed the Caribbean Single Market and Economy (CSME) - to lower trade barriers and harmonize macro-economic and monetary policy between members ©McGraw-Hill Education. What Is Free Trade Of The Americas? • Talks began in April 1998 to establish a Free Trade of The Americas (FTAA) by 2005 • The FTAA was not established and now support from the U.S. and Brazil is mixed – the U.S. wants stricter enforcement if intellectual property rights – Brazil and Argentina want the U.S. to eliminate agricultural subsidies and tariffs • If the FTAA is established, it will have major implications for cross-border trade and investment flows within the hemisphere – would create a free trade area of 850 million people who accounted for nearly $18 trillion in GDP in 2008 ©McGraw-Hill Education. What Is The Status Of Economic Integration In Asia? • Various efforts at integration have been attempted in Asia, but most exist in name only – Association of Southeast Asian Nations (ASEAN) – Asia-Pacific Economic Cooperation (APEC) ©McGraw-Hill Education. What Is The Association Of Southeast Asian Nations? (1 of 2) • The Association of Southeast Asian Nations (ASEAN, 1967) – currently includes Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Myanmar, Laos, and Cambodia – wants to foster freer trade between member countries and to achieve some cooperation in their industrial policies • An ASEAN Free Trade Area (AFTA) between the six original members of ASEAN came into effect in 2003 – ASEAN and AFTA are moving towards establishing a free trade zone ©McGraw-Hill Education. What Is The Association Of Southeast Asian Nations? (2 of 2) ASEAN Countries ©McGraw-Hill Education. What Is The Asia-Pacific Economic Cooperation? (1 of 2) • The Asia-Pacific Economic Cooperation (APEC) – has 21 members including the United States, Japan, and China – wants to increase multilateral cooperation – member states account for 55\% of world’s GNP, and 49\% of world trade ©McGraw-Hill Education. What Is The Asia-Pacific Economic Cooperation? (2 of 2) APEC Members ©McGraw-Hill Education. What Is The Status Of Economic Integration In Africa? • Many countries are members of more than one of the nine blocs in the region – but, since many countries support the use of trade barriers to protect their economies from foreign competition, meaningful progress is slow • The East African Community (EAC) was re-launched in 2001, however, the effort so far appears futile ©McGraw-Hill Education. What Does Economic Integration Mean For Managers? • Regional economic integration – opens new markets – allows firms to realize cost economies by centralizing production in those locations where the mix of factor costs and skills is optimal • But – within each grouping, the business environment becomes competitive – there is a risk of being shut out of the single market by the creation of a “trade fortress” ©McGraw-Hill Education. Chapter 10 The Foreign Exchange Market ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. Why Is The Foreign Exchange Market Important? The foreign exchange market 1. is used to convert the currency of one country into the currency of another 2. provides some insurance against foreign exchange risk the adverse consequences of unpredictable changes in exchange rates • The exchange rate is the rate at which one currency is converted into another • events in the foreign exchange market affect firm sales, profits, and strategy ©McGraw-Hill Education. When Do Firms Use The Foreign Exchange Market? • International companies use the foreign exchange market when – the payments they receive for exports, the income they receive from foreign investments, or the income they receive from licensing agreements with foreign firms are in foreign currencies – they must pay a foreign company for its products or services in its country’s currency – they have spare cash that they wish to invest for short terms in money markets – they are involved in currency speculation - the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates ©McGraw-Hill Education. How Can Firms Hedge Against Foreign Exchange Risk? (1 of 2) The foreign exchange market provides insurance to protect against foreign exchange risk – the possibility that unpredicted changes in future exchange rates will have adverse consequences for the firm – A firm that insures itself against foreign exchange risk is hedging ©McGraw-Hill Education. How Can Firms Hedge Against Foreign Exchange Risk? (2 of 2) • The spot exchange rate is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day – spot rates change continually depending on the supply and demand for that currency and other currencies • Spot exchange rates can be quoted as the amount of foreign currency one U.S. dollar can buy, or as the value of a dollar for one unit of foreign currency ©McGraw-Hill Education. What Is The Difference Between Spot Rates And Forward Rates? • To insure or hedge against a possible adverse foreign exchange rate movement, firms engage in forward exchanges – two parties agree to exchange currency and execute the deal at some specific date in the future • A forward exchange rate is the rate used for these transactions – rates for currency exchange are typically quoted for 30, 90, or 180 days into the future ©McGraw-Hill Education. What Is A Currency Swap? • A currency swap is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates • Swaps are transacted – between international businesses and their banks – between banks – between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange rate risk ©McGraw-Hill Education. What Is The Nature Of The Foreign Exchange Market? • The foreign exchange market is a global network of banks, brokers, and foreign exchange dealers connected by electronic communications systems – the average total value of global foreign exchange trading in March, 1986 was just $200 billion, in April, 2010 it hit $4 trillion per day – the most important trading centers are London, New York, Zurich, Tokyo, and Singapore – the market is always open somewhere in the world—it never sleeps ©McGraw-Hill Education. Do Exchange Rates Differ Between Markets? (1 of 2) • High-speed computer linkages between trading centers mean there is no significant difference between exchange rates in the differing trading centers • If exchange rates quoted in different markets were not essentially the same, there would be an opportunity for arbitrage – the process of buying a currency low and selling it high ©McGraw-Hill Education. Do Exchange Rates Differ Between Markets? (2 of 2) Most transactions involve dollars on one side—it is a vehicle currency – 85\% of all foreign exchange transactions involve the U.S. dollar – other vehicle currencies are the euro, the Japanese yen, and the British pound – China’s renminbi is still only used for about 0.3\% of foreign exchange transactions ©McGraw-Hill Education. How Are Exchange Rates Determined? • Exchange rates are determined by the demand and supply for different currencies • Three factors impact future exchange rate movements 1. A country’s price inflation 2. A country’s interest rate 3. Market psychology ©McGraw-Hill Education. How Do Prices Influence Exchange Rates? (1 of 5) 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 – otherwise there is an opportunity for arbitrage until prices equalize between the two markets ©McGraw-Hill Education. How Do Prices Influence Exchange Rates? (2 of 5) Purchasing power parity theory (PPP) argues that given relatively efficient markets (a market with no impediments to the free flow of goods and services) the price of a “basket of goods” should be roughly equivalent in each country – predicts that changes in relative prices will result in a change in exchange rates ©McGraw-Hill Education. How Do Prices Influence Exchange Rates? (3 of 5) • A positive relationship exists between the inflation rate and the level of money supply – when the growth in the money supply is greater than the growth in output, inflation will occur • PPP theory suggests that changes in relative prices between countries will lead to exchange rate changes, at least in the short run – a country with high inflation should see its currency depreciate relative to others ©McGraw-Hill Education. Source: From Juan-Antonio Morales, “Inflation Stabilization in Bolivia” in Inflation Stabilization: The Experience of Israel, Argentina, Brazil, Bolivia, and Mexico, ed. Michael Bruno et al. (Cambridge, MA: MIT Press, 198 ... Purchase answer to see full attachment