Health & Medical Question

Unit 4: Current Events Discussion

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Overview

This discussion is about intellectual property violations. Conduct research on current events relating to our topic and then share your findings in text or in a brief audio submission, no longer than 3 to 4 minutes. Review peers’ findings and then engage in an active discussion to learn more about the topic at hand.

Note: Podcast feed is enabled, so you can subscribe to it with iTunes or listen to peers in Canvas.

Resources

Due Date

Directions

Initial PostProvide the name of your sourceProvide an overview of the issue at handSummarize how the violation was handledShare applicable financial information (for example: Company Y lost $X in sales)Analyze the legal ramifications of the situation and discuss concepts from the class that relate to the violation.Support your response with at least one credible reference.Note: Citations may be in text to accompany the audio submission.Response Posts Select two peers to respond to.Explain why you agree or disagree with their analysis.Support your responses with credible references, where applicable. Note: Citations may be in text to accompany the audio submissionUnit 4: Midterm Case StudyDue Sunday by 11:59pmPoints 150Submitting an external toolOverviewThe midterm is based on a mini-case from your textbook and concepts from past units. Note that Turnitin is enabled for this midterm.RequirementsFinal document should be at least 3-5 pages, which does not include the cover and reference pages.Paper should be APA format.ResourcesPlease refer to the Technology policies in the Course Overview to familiarize yourself with how the originality reporting tool works.Mini-caseRefer to “The Globalization of Walmart” on page 262-263 of your textbook. DirectionsAnswer the 3 questions stated at the end of the case study.Then identify three concepts from Units 1 through 4, that relate to the information in the case study.Briefly explain the concepts Explain how the concepts relate to the case study contentExplain how the concepts helped to solve a problem within the case study  Because learning changes everything.®
Economic and
Socioeconomi
c Forces
Module 7
© 2020 McGraw Hill. 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.
Learning Objectives
7-1
Explain the purpose of economic analyses.
7-2
Compare different categories of countries, based on
levels of national economic development.
7-3
Outline the dimensions used to describe the economy
and their indicators.
7-4
Discuss the socioeconomic dimensions of economies
and the indicators used to assess them.
© McGraw Hill
Two Emerging Asian Superpowers: The
China-versus-India Development Race
Representing the largest populations on the planet, China
and India are competing with each other for wealth and
influence. Economically, China leads in terms of economic
development. But some believe that India has advantages in
the long run in terms of English fluency and a younger
demographic.
To date, India’s strength has been in services while China
has been the manufacturing powerhouse. Both countries
have become major destinations for outsourcing.
© McGraw Hill
3
International Economic Analyses
1
Economic Analyses for Multinationals
• More complex than those for a purely domestic firm.
• There are many economies to consider instead of just one, there
are interactions between them, and values are highly divergent.
• Purpose is to assess the overall outlook for the economy
and the impact of economic changes on the firm.
• Should include economic data on actual and prospective
markets.
© McGraw Hill
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Figure 7.1 Impact of Economic Forecast on
Firm’s Functional Areas
Access the text alternative for slide images.
© McGraw Hill
5
International Economic Analyses
2
Foreign Environment
• Includes all the uncontrollable forces originating outside
the home country that surround and influence the firm.
• The interaction between domestic and foreign
environmental forces or between sets of foreign
environmental forces.
© McGraw Hill
6
Levels of Economic Development
1
Gross Domestic Product
• The total monetary value of all goods and services
produced within a nation.
Gross National Income (GNI)
• The total value of all income generated by the residents of
a nation, including both the domestic production of goods
and services and income from abroad.
© McGraw Hill
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Levels of Economic Development
2
GNI per Captia
• High-income economies: GNI per capita of $12,056 or
more.
• Middle-income economies: GNI per capita of over $995
but less than $12,056, which can be further divided into:
• Upper-middle-income economies: GNI per capita of $3,896 up to
$12,055.
• Lower-middle-income economies: GNI per capita over $996 up to
$3,895.
• Low-income economies: GNI per capita of $995 or less.
© McGraw Hill
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Levels of Economic Development
3
Developing Economies
• A classification for the world’s lower-income nations, which
have less technically developed infrastructures and lower
living standards.
Developed Economies
• A classification for high-income industrialized nations,
which have high living standards and the most technically
developed infrastructures.
© McGraw Hill
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Table 7.1 Characteristics of Developed
Economies
1
•
Per capita gross national income of $12,056 or more (World Bank criterion).
•
A high material standard of living, high quality of life index, and a substantial
middle class.
•
Frequent application of the most advanced production techniques and
equipment.
•
A large base of productive capital, sophisticated financial markets and banking
systems, and vigorous international trade in a range of sectors.
•
A very small share of total output coming from agriculture and a declining
share for manufacturing.
•
Well-established governmental and legal systems.
•
Plentiful educational opportunities and low illiteracy.
•
Relatively low levels of unemployment or underemployment.
•
Adequate or high levels of nutrition and access to health care.
© McGraw Hill
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Table 7.1 Characteristics of Developing
Economies
2
•
Per capita gross national income of less than $12,056 (World Bank criterion).
•
A moderate to low material standard of living and quality of life index, regional dualism
reflecting a high productivity and incomes in some regions and little economic development in
others, unequal distribution of income with a very small middle class.
•
Technological dualism, meaning the presence of a mix of firms employing the latest
technology and companies using very primitive methods.
•
Low savings rates, inadequate banking facilities, and high dependence on a few products for
export, generally agricultural products or minerals.
•
A relatively unproductive agricultural sector that provides a living for most of the population.
•
Political instability and deficient governmental and legal systems.
•
High illiteracy rate and few educational facilities.
•
Disguised unemployment or underemployment (two people do a job one person could do).
•
Widespread malnutrition and a wide range of health problems.
•
Inhospitable topography, such as deserts, mountains, and tropical forests.
© McGraw Hill
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Levels of Economic Development
4
Emerging Market Economies
• Economies with per-capita incomes in the low to middle
range that are in a transition toward developed status.
© McGraw Hill
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Dimensions That Describe the Economy and
Their Relevance for International Business
1
Measuring the Size of an Economy
• GNI measures total value of all income.
• GNI per capita indicates how advanced economy is but
should be used with caution.
© McGraw Hill
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Critical Thinking Question
What impacts do economic forecasts have on a
firm’s functional areas?
If management learns from the economic analysis of
country A that wage rates are expected to increase
by 10 percent next year, which functional areas of
the firm will be concerned?
Why will this be of concern to management?
© McGraw Hill
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Dimensions That Describe the Economy and
Their Relevance for International Business
2
Purchasing Power Parity
• A means of adjusting the exchange rates for two
currencies so the currencies have equivalent purchasing
power.
Goods
Thailand (baht)
U.S. ($)
Soap (bar)
50
1.25
Rice (pound)
35
0.55
Shoes (pair)
905
70.00
Dress
780
85.00
Socks (pair)
95
3.25
1,865 baht
$160.05
Total
© McGraw Hill
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Table 7.2 GNI/Capita Based on UN ICP for Selected Countries
© McGraw Hill
Country
GNI/Capita in US$ Converted at World
Bank-Adjusted Exchange Rates
GNI/Capita in US$ Based on
Purchasing Power Parity
Norway
75,990
63,530
Qatar
61,070
128,060
United States
58,270
60,200
Canada
42,870
45,750
United Kingdom
40,530
43,160
Japan
38,550
45,470
Saudi Arabia
20,080
54,770
Turkey
10,930
27,550
Malaysia
9,650
28,650
Russian Federation
9,232
24,893
China
8,690
16,760
Mexico
8,610
17,740
Ecuador
5,890
11,350
Iraq
4,770
17,010
Nigeria
2,080
5,680
India
1,820
7,060
16
Dimensions That Describe the Economy and
Their Relevance for International Business
3
Atlas Conversion Factor
• The arithmetic average of the current exchange rate and
the exchange rates in the two preceding years, adjusted
by the ratio of domestic inflation to the combined inflation
rates of the euro zone, Japan, the United Kingdom, and
the United States.
© McGraw Hill
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Dimensions That Describe the Economy and
Their Relevance for International Business
4
Underground Economy
• The part of a nation’s income that, because of un-reporting
or underreporting, is not measured by official statistics.
• Includes undeclared production of legal and illegal goods
and services, their corresponding activities (e.g., money
laundering), and concealed income in kind (barter).
© McGraw Hill
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Figure 7.3 Shadow Economies as a Percentage
of GDP in Selected Countries 2017
Sources: Leandro Medina and Friedrich Schneider, “Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?” International Monetary Fund, Working
Paper WP/18/17, January 2018, https://www.imf.org, accessed October 2, 2018; and Niall McCarthy, “The Countries with the Largest Shadow Economies,” Forbes,
https://www.forbes.com, accessed September 20, 2018.
Access the text alternative for slide images.
© McGraw Hill
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Dimensions That Describe the Economy and
Their Relevance for International Business
5
Economic Growth Rate
• GNI and GNI per capita only provide a snapshot of an
economy.
• Managers should supplement their analyses by assessing
economic growth rates as measures of an economy’s
absolute size.
• Rapid and rising rates imply consumer demand.
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Dimensions That Describe the Economy and
Their Relevance for International Business
6
Income Distribution
• A measure of how a nation’s income is apportioned among
its people.
GINI Index
• A measure of the degree to which family income within a
country is distributed equally.
• Wide range around the world.
© McGraw Hill
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Dimensions That Describe the Economy and
Their Relevance for International Business
7
Private Consumption
• Disposable income: after-tax personal income.
• Discretionary income: amount of income left after paying
taxes and making essential purchases.
Personal Consumption
• Ownership of goods.
• Consumption of key materials.
© McGraw Hill
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Dimensions That Describe the Economy and
Their Relevance for International Business
8
Unit Labor Costs
• Total direct labor costs divided by units produced.
• Low or slowly rising unit labor costs may indicate
opportunity to lower production costs and may indicate
locations of new competition in world markets.
• Changes in wage rates may cause companies to change
their international sources of supply.
• Labor costs based on compensation, productivity, and
exchange rates.
© McGraw Hill
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Figure 7.4 Index of Average Hourly Compensation Costs
in Manufacturing for Selected Countries, US Dollars
Basis 2000 to 2016
Note: Compensation costs include direct pay, social insurance expenditures, and labor-related taxes.
Access the text alternative for slide images.
© McGraw Hill
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Dimensions That Describe the Economy and
Their Relevance for International Business
9
Other Economic Dimensions
• Large and growing international debts of middle- and lowincome nations cause problems for their governments and
for multinational firms.
• Large foreign debts may hinder access to foreign currency
to pay for imports billed in foreign currency, if such
currency is being used to pay foreign debt, hindering
access to raw materials, spare parts, and other inputs.
© McGraw Hill
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Dimensions That Describe the Economy and
Their Relevance for International Business
10
Other Economic Dimensions continued
• High debt may cause governments to impose price
controls, cut government spending, and impose wage
controls, sometimes encouraging political crises.
• Scarcity of foreign exchange may hinder companies trying
to export products to such nations, as indebted
governments may impose import restrictions to conserve
their foreign exchange for repayment of debt.
• Vertical integration is the production by a firm of inputs for
its own manufacturing processes.
© McGraw Hill
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Global Debate
This debate centers around the subject of the best way to
measure a nation’s development—through income or quality
of life? Two basic approaches to assessing development (1)
focus on the economy and (2) take a closer look at people
and the choices and options open to them for healthy,
fulfilling lives.
1. Which approach to measuring development do you think would be
most useful for international managers to follow in assessing a
potential market’s level of development?
2. Do you agree or disagree with former U.S. attorney and presidential
candidate Robert F. Kennedy’s assertions that an approach to
understanding development that relies on market data is not really
what we need to know to understand our development as people
(and markets)?
© McGraw Hill
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Table 7.7 Major International Debtors among
Developing Countries, Total External Stock of Debt in
Billions of Dollars
Country
1980
1990
2000
2010
2016
2016 Debt as Percentage
of 1980 Debt
Argentina
27
63
150
126
191
707%
Brazil
72
120
243
352
543
754
China
5
55
146
735
1429
28,580
India
21
84
101
290
456
2,171
Indonesia
21
70
144
198
316
1,504
Mexico
58
105
153
246
423
729
Turkey
19
49
117
301
406
2,136
Source: World Bank, “External Debt Stocks, Total (DOD, Current US$),” https://data.worldbank.org, accessed October 2, 2018.
© McGraw Hill
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Socioeconomic Dimensions of the Economy and
Their Relevance for International Business
1
Total Population
• The most general indicator of potential market size.
• First characteristic of the population that analysts
examine.
• Population size alone poor indicator of economic strength
and market potential.
© McGraw Hill
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Figure 7.5 Population Growth of the World’s 10 MostPopulation Countries by 2050 (Millions of Inhabitants)
Sources: “Population, Total,” The World Bank Group, September 20, 2018; and “The Twenty Most Populous Countries in 1950, 1999, and 2050,” United Nations
Population Division, September 20, 2018.
Access the text alternative for slide images.
© McGraw Hill
30
Socioeconomic Dimensions of the Economy and
Their Relevance for International Business
2
Age Distribution
• Distribution of age groups within populations varies widely,
but developing countries generally have younger
populations than do industrial countries, due to higher
birthrates.
• Many countries experiencing a reduction in birth rates.
• Early retirements and increased life spans straining social
security systems.
© McGraw Hill
31
Socioeconomic Dimensions of the Economy and
Their Relevance for International Business
3
Population Density and Distribution
• Population density: A measure of the number of
inhabitants per area unit (inhabitants per square kilometer
or square mile).
• Population distribution: A measure of how the inhabitants
are distributed over a nation’s area.
• Rural-to-urban shift: The movement of a nation’s
population from rural areas to cities.
© McGraw Hill
32
Socioeconomic Dimensions of the Economy and
Their Relevance for International Business
4
Other Socioeconomic Dimensions
• Increase in number of working women increases labor
supply and creates larger family incomes.
• Divorce rates indicate formation of single-parent families.
• Ethnic groups may require special considerations.
© McGraw Hill
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Get That Job! From Backpack to Briefcase
Jason Jack Peters
Jason Peters discusses his experiences in learning
about new cultures and some of the techniques that
students can use in order to gain a deeper
understanding of the culture and business practices in
other nations.
•
© McGraw Hill
Jason Peters says that he has learned that, for
someone who wishes to develop international
skills and experiences, the biggest challenge is
oneself. Do you agree with this assertion? Why or
why not? What do you think of his
recommendations for addressing this challenge?
Courtesy of Jack Peters
34
MiniCase
The minicase “The Impact of Darawan’s Development Policy”
explores the question of how a change in development strategy
can affect a nation. In this case, the Industrias Globales company
is planning to enter the Republic of Darawan to do business and
the republic announces a new economic strategy. Pedro Garcia is
the firm’s director of international operations.
Imagine you are Pedro Garcia.
1. Describe the two strategies for the CEO.
2. Explain how the change in Darawan’s development strategy will
affect the firm in many ways.
3. What changes in its entry plans will the firm have to make?
© McGraw Hill
35
Because learning changes everything.
www.mheducation.com
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No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
®
Because learning changes everything.®
The
International
Monetary
System and
Financial Forces
Module 8
© 2020 McGraw Hill. 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.
Learning Objectives
8-1
Describe the international monetary system’s history.
8-2
Describe today’s floating currency exchange rate
system, including the IMF currency arrangements.
8-3
Describe the factors that influence exchange rate
movement.
8-4
Discuss financial forces governments can exert.
8-5
Explain the significance of the balance of payments to
international business decisions.
© McGraw Hill
How International Terrorism Gets Funded
Security professionals study the way funds for terrorism are
transferred across borders and governments send a
message to the nonbank financial institutions that serve this
threat.
In Africa and the Middle East funds are transferred through
hawala or hundi, which leaves few or no traces of the activity.
In other countries, sales invoices are manipulated, or virtual
currencies are used.
International coordination efforts like the Financial Action
Task Force on Money Laundering take measures to limit
these actions.
© McGraw Hill
3
The International Monetary System: A Brief
History
1
The Gold Standard
• A monetary system that defines the value of its currency in
terms of a fixed amount of gold.
• Established in Britain by Sir Isaac Newton in 1717.
• Government does not have monetary flexibility.
Gold often serves as a way to store
value during crises.
© McGraw Hill
©Ayala_studio/iStock/Getty Images
4
The International Monetary System: A Brief
History
2
The Bretton Woods System
• The international monetary system in place from 1945 to
1971, with par value based on gold and the U.S. dollar.
• Fixed exchange rates: currency’s value is tied to the value
of another currency or gold.
• Par value: stated value.
© McGraw Hill
5
The International Monetary System: A Brief
History
3
The Bretton Woods System continued
• Reserves: Assets held by a nation’s central bank, used to
back up government liabilities.
• Triffin paradox: national currency that is also a reserve
currency will eventually run a deficit, leading to lack of
confidence in the reserve currency and a financial crisis.
• Special drawing rights (SDR): the unit of account for the
IMF and other international organizations.
© McGraw Hill
6
The International Monetary System: A Brief
History
4
The Central Reserve/National Currency Conflict
• U.S. dollar most used central reserve since end of WWII.
• Holding large amounts of U.S. dollars eventually means
they will lose value (Triffin paradox).
• IMF would like a non-national asset to become main
reserve.
© McGraw Hill
7
Critical Thinking Question
Was the Bretton Woods system bound to fail? Why
or why not?
© McGraw Hill
8
The Floating Currency Exchange Rate System
1
Floating Exchange Rates
• Determined by supply and demand that allow currency
values to float against one another.
• Jamaica Agreement established flexible exchange rates
among IMF members.
© McGraw Hill
9
The Floating Currency Exchange Rate System
2
Current Currency Arrangements
• Exchange arrangement with no separate legal tender.
• Currency board arrangement.
• Conventional fixed-peg arrangement.
• Stabilized arrangement: Pegged exchange rate within a
horizontal band.
© McGraw Hill
10
The Floating Currency Exchange Rate System
3
Current Currency Arrangements continued
• Crawling peg.
• Crawling band.
• Managed floating.
• Free floating exchange rates.
© McGraw Hill
11
Table 8.1 Three-Tiered Categorization of IMF Exchange
Rate Arrangements with Percentage of Users
Exchange Rate Arrangement
2009
2013
2017
Hard Pegs
No separate legal tender
Currency board
12.2
5.3
6.9
13.1
6.8
6.3
12.5
6.8
5.7
Soft pegs
Conventional peg
Stabilized arrangement
Crawling peg
Crawl-like arrangement
Pegged exchange rate within horizontal bands
34.6
22.3
6.9
2.7
0.5
2.1
42.9
23.6
9.9
1.0
7.9
0.5
42.2
22.4
12.5
1.6
5.2
0.5
Floating
Floating
Free floating
42.0
24.5
17.6
34.0
18.3
15.7
39.5
19.8
16.1
Residual
Other managed relationship
11.2
9.9
9.4
Source: International Monetary Fund, Annual Report on Exchange Arrangements and Exchange Restrictions, various years, https://www.imf.org, accessed
October 4, 2018.
© McGraw Hill
12
Table 8.2 Summary of the Monetary System
System
Gold
Bretton Woods Fixed
Gold Exchange
Floating
Pros
Simple
Widely trusted
Mandated monetary
discipline
Fixed rate
Good for trade growth
Flexible (free/managed float,
peg)
Responsive to market forces
Good for huge volume
Cons
Impractical with large
trade flows
Costly to hold
Led to U.S. balance of
payment deficit
Led to U.S. government
liabilities to foreign central
banks
Reduced U.S. gold reserves
Causes widely swinging
currency values
Controlling
Mechanism
Gold flows: pricespecie-flow
mechanism (Hume)
Government adjusted rates
against dollar
Dollar constant against gold
Market forces with some
government intervention
© McGraw Hill
13
The Floating Currency Exchange Rate System
4
The Bank for International Settlements (BIS)
• Institution for central bankers.
• Operates to build cooperation in order to foster monetary
and financial stability.
• Known as most discrete financial institution in the world.
© McGraw Hill
14
Financial Forces: Fluctuating Currency Values
1
Fluctuating Currency Values
• The major currencies are allowed by their central banks to
fluctuate freely against each other.
• U.S. dollar
• British pound sterling
• Japanese yen
• Euro
© McGraw Hill
15
Figure 8.1 Value of the Euro in Dollar Terms,
1999 to 2018
Source: “Euro Dollar Exchange Rate (EUR USD)—Historical Chart,” https://www.macrotrends.net, accessed October 4, 2018.
Access the text alternative for slide images.
© McGraw Hill
16
Financial Forces: Fluctuating Currency Values
2
Why Foreign Currency Exchange Occurs
• Buyers and sellers want to do business in own currency to
avoid risk that accompanies currency exchange.
• Vehicle currency used as a vehicle for international trade
or investment, such as diamond market uses U.S. dollar.
• Intervention currency used to intervene in the foreign
currency exchange markets.
© McGraw Hill
17
Financial Forces: Fluctuating Currency Values
4
Exchange Rate Quotations and the FX Market
• Reciprocal currency is quoted as dollars per unit of
currency instead of in units of currency per dollar.
• Spot rate is the exchange rate between two currencies for
delivery within two business days.
© McGraw Hill
18
Financial Forces: Fluctuating Currency Values
5
Exchange Rate Quotations and the FX Market
continued
• Forward currency market for currency contracts
deliverable 30, 60, 90, or 180 days in the future.
• Forward rate is exchange rate between two currencies for
delivery in the future, usually 30, 60, 90, or 180 days.
© McGraw Hill
19
Financial Forces: Fluctuating Currency Values
6
Exchange Rate Quotations and the FX Market
continued
• Bid price is highest-priced buy order currently in the
market.
• Ask price is lowest-priced sell order currently in the
market.
© McGraw Hill
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Financial Forces: Fluctuating Currency Values
7
Causes of Exchange Rate Movement
• Monetary policies control the amount of money in
circulation and its growth rate.
• Fiscal policies address the collecting and spending of
money by the government.
• Law of one price concept says that in an efficient market,
like products will have like prices.
© McGraw Hill
21
Financial Forces: Fluctuating Currency Values
8
Causes of Exchange Rate Movement continued
• Arbitrage is the process of buying and selling
instantaneously to make profit with no risk.
• Fisher effect shows relationship between real and nominal
interest rates.
• The real interest rate will be the nominal interest rate minus the
expected rate of inflation.
© McGraw Hill
22
Financial Forces: Fluctuating Currency Values
9
Causes of Exchange Rate Movement continued
• International Fisher effect says the interest rate
differentials for any two currencies will reflect the expected
change in their exchange rates.
• Purchasing power parity is the amount of adjustment that
must be made in the exchange rates for two currencies for
them to have equivalent purchasing power.
© McGraw Hill
23
Global Debate
This debate centers around the subject of fixed foreign
exchange rates and the question of whether returning to the
gold standard is a good idea.
It appears that we have gone from the thing we valued, gold
as a currency, to a currency that operated as a proxy for
gold, to currencies that float against one another in a largely
free float, hinged not to gold but to our faith in the monetary
system.
1. If the SDR were used, would a viable fixed-rate regime be possible or
not?
2. Given the inclusion of the SDR, outline the pro and con arguments for
a fixed-rate regime.
© McGraw Hill
24
Financial Forces: Fluctuating Currency Values
10
Exchange Rate Forecasting
• Efficient market approach is assumption that current
market prices fully reflect all available relevant information.
• Random walk hypothesis is assumption that the
unpredictability of factors suggests that the best predictor
of tomorrow’s prices is today’s prices.
© McGraw Hill
25
Financial Forces: Fluctuating Currency Values
11
Exchange Rate Forecasting continued
• Fundamental approach is based on econometric models
that attempt to capture the variables and their correct
relationships.
• Technical analysis analyzes date for trends and then
projects these trends forward.
© McGraw Hill
26
Financial Forces Government Can Exert
1
Currency Exchange Controls
• Governments can control currency exchange of their
currency and other currencies within their borders.
• Motivation is to manage foreign reserves.
• With currency controls, exchange rates usually above
open market rates.
© McGraw Hill
27
Financial Forces Government Can Exert
2
Currency Exchange Controls
continued
• Convertible currencies can be
exchanged for other currencies
without restrictions.
• Nonconvertible currencies value
is arbitrarily fixed typically at a
rate higher than its value in the
free market and government
imposes exchange controls.
Foreign exchange in action.
© McGraw Hill
©Mike Clarke/AFP/Getty Images
28
Financial Forces Government Can Exert
3
Taxation
• Effective tax management can yield a competitive
advantage.
• Three types of taxation:
1. Income tax
2. Value-added tax (VAT)
3. Withholding tax
© McGraw Hill
29
Figure 8.2 Comparisons of Corporate Tax Rates,
G20 Nations, 2018
Source: “List of Countries by Corporate Tax Rate/G20,” Trading Economics, 2018, https://tradingeconomics.com.
Access the text alternative for slide images.
© McGraw Hill
30
Financial Forces Government Can Exert
4
Inflation and Interest Rates
• Inflation is a sustained increase in prices.
• Determines real cost of borrowing in capital markets.
• Rising rates encourage borrowing.
• Inflated currencies tend to weaken.
• Interest rates rise with inflation.
• Inflation rates cause the cost of the goods and services to
rise, so they become less competitive globally.
© McGraw Hill
31
Balance of Payments
1
BOP
• A record of a country’s transactions with the rest of the
world.
• Shows flow of capital in and out of the country.
• Reveals demand for a country’s currency.
© McGraw Hill
32
Balance of Payments
2
BOP Accounts
• Use double-entry bookkeeping.
• Payments to other countries are debits.
• Payments from other countries are credits.
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Balance of Payments
3
Deficits and Surpluses in BOP Accounts
• Current account tracks tangible goods such as services
and intangibles such as aid.
• Capital account tracks financial assets and liabilities, direct
investment, portfolio investment, short-term capital flows.
• Official reserves reflect gold imports and exports.
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Balance of Payments
4
Deficits and Surpluses in BOP Accounts continued
• Current account deficit may mean economic problems
such as inflation OR that demand into the country exceeds
outward flows.
• To understand deficit, you must look at total picture.
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Get That Job! From Backpack to Briefcase
Angela Schmitz
Angela Schmitz discusses her summer job in which
she spent eight weeks working for Acción Humana in
Guatemala. While there she did graphic design and
website management, and she also taught four
English language classes. Her work area consisted
of three desks in a small room that was just two feet
from the boss’s home. She experienced cultural
difference including starting meetings 4 hours late!
This experience helped her in getting future
internships and jobs.
•
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Schmitz said that her experience in Guatemala
helped her to get other internships and jobs.
What might an employer look for in a person that
has had such an experience abroad?
Courtesy of Angela Schmitz
36
MiniCase
The minicase “SDR Exchange Risk” discusses the Asian
Development Bank and its use of making loans in SDR
instead of dollars or euros.
1. Why would ADB hold SDR instead of dollars or euros?
2. What are the currency amounts that make up the SDR?
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