SlideShare uma empresa Scribd logo
1 de 18
FOREX AND
INTERNATIONAL TRADE
By : Nokesh Hirendra Lele




                            Roll No: 04
                            Ex-MBA Sem 2
Why International Trade ?
 The unevenly distributed natural resources on the
 globe resulted in interdependency amongst
 nations, giving rise to exchange of goods and
 services to meet mutual requirements
       Resulting in International Trade
 Trading globally gives consumers and countries the opportunity
to be exposed to goods and services not available in their own
countries. Almost every kind of product can be found on the
international market: food, clothes, spare parts, oil, jewelry, wine,
stocks, currencies and water. Services are also traded: tourism,
banking, consulting and transportation
Import / Export…
 Purchase of Goods and Services from International
 Market for sale or consumption in Domestic
 Market is called Import
     E.g. India Import Crude Oil , Iron ore from international
      market
 Goods and Services produced in Domestic Market
 and sold in International Market is called Export
     E.g. India Export Engineering Good , Iron & Steel
A economy which encourages international trade is
      called as open economy. A useful measure of openness
      is the ratio of a country‘s export or import to its GDP
                  India’s Import Export % to GDP
35                                                              1
30                                                              0
25                                                              -1
20                                                              -2
15                                                              -3
10                                                              -4
 5                                                              -5
0                                                               -6
      1976




      1986




      2002
      1970




      2004
      2006

      2010
      1982




      2000
      1964
      1966




       1974

      1978
      1980

      1984

      1988

      1992




      2008
      1960




      1968
      1962




       1972




      1994
      1990


      1996
      1998        Export % GDP   Import % GDP   Deficit
Economics…

Basic Economic Theories of International Trade: Answer to the question why?

                Theory of Absolute Advantage

                Theory of Comparative Advantage

                Heckscher – Ohlin Model
Economics…
Theory of Absolute Advantage                                            By : Adam Smith 1776

International trade takes place because one country may be more efficient in
producing a particular good than another country, and that other country may be
capable of producing some other good more efficiently than the first one. This
provides an incentive to trade as both the countries can benefit from specialization
and the resultant increase in productivity


  Example:
      Country                            Aircraft                            Supercomputer
      Country A                          20 Labor Units                      10 Labor Units
      Country B                          10 Labor Units                      20 Labor Units
         *Assuming all other factor of production are used in equal amount

   Here, Country A enjoy absolute advantage in producing Supercomputer
          Country B enjoy absolute advantage in producing Aircraft
   Let’s assume country A exchange 1 supercomputer for 1 Aircraft
    Then Country A will be able to use 10 Labor to produce a Supercomputer and get a
   Aircraft and use other 10 Labor to product supercomputer for domestic use
   Country B will also benefit in same fashion
Economics…
Theory of Comparative Advantage                                              By : David Ricardo 1817

According to the absolute advantage theory, two countries enter into trade when both
of them hold an absolute advantage in the production of at least one product. The
question arises here is whether two countries can benefit by trading with each other
even if one of them has an absolute advantage in all the commodities. According to
the theory of Comparative Advantage propounded by the English Economist David
Ricardo in 1817,trade is possible as long as both the countries enjoy comparative
advantage in at least one of the product

  Example:
                                        Labor Hour Required to produce
          Country                         1 Unit of Steel            1 Unit of Cement
          Country A                       5                          10
          Country B                       15                         20
         *Assuming all other factor of production are used in equal amount


  Here, Country A enjoys absolute advantage in producing both the commodities
  Let’s assume that both the countries have 600 unit of labor-hour at their disposal
  which can be either use for producing Steel or Cement
Economics…
Theory of Comparative Advantage cont…

             Labor Hour Required to produce *assuming 600 labor hours are available
      Country                     1 Unit of Steel (Max)       1 Unit of Cement (Max)
      Country A                   600/ 5 = 120                600/10 = 60
      Country B                   600/15 = 40                 600/20 = 30

 For producing each unit of steel, the production of a particular number of units of
 cement has to be forgone and vice versa. The quantity of cement thus forgone in order
 to product one unit of steel is called the Opportunity cost of steel
                     Opportunity cost involve in production of Steel and Cement
        Country                     1 Unit of Steel                1 Unit of Cement
        Country A                   60/120 = 0.5                   120/60 = 2
        Country B                   30/40 = 0.75                   40/30 = 1.33




 India has a comparative advantage in providing world class services in low
 cost. So we earn a net export of 43,747 cr (April June 2011) from service sector
Economics…
Heckscher-Ohline Model                 By : Eli Heckscher and Bertil Ohlin 1920

According to this theory, there are two types of products Labor Intensive and Capital
This model explores the possibility of two nations operating at the same level of
efficiency, benefiting by trading with each other reason can be traced to the
difference in their Factor Endowment
          The labor rich country is more likely to produce labor intensive goods and
the capital rich country most probably produce capital intensive goods. This countries
will then trade these goods and reap the benefits of international trade




      India has a high skilled labor force available comparatively at cheap
      rate which is very attractive to foreign capital giving a room for
      development in both Service sector and Manufacturing Sectors
               So Engineering goods as well as Software Services
Economics…
Balance Of Payment

A country’s Balance of Payment is a systematic statement of all economic transaction
between that country and the rest of the world. Its major components are the current
account and the financial account.

   I. Current Account
     Merchandise (or Trade Balance)
     Services
     Investment Income
     Unilateral Transfer
   II. Capital Account
     Private
     Government
           Official Reserve Changes
           Other

 The Balance of payment has two fundamental parts. The current account represents
 the spending and receipt on goods and services along with transfers. The financial
 account includes purchases and sales of financial assets and liabilities.
 An important principle is that two must always sum to zero
          Current Account + Financial Account –I + II = 0
Economics…
GOVERNMENT TOOLS


 Despite all the obvious benefits of international trade , Government have an
 inclination to put up trade barriers in order to discourage import
 1. Tariff Barriers

 2. International Price Fixing

 3. Exchange Controls

 4. Non-Tariff Barriers
        1. Quota
        2. Embargo
        3. Subsidies to Local Goods
        4. Local Content Requirement
Economics…
Risk Involved in International Trade


 Risk and reward always go hand-in hand True to this maxim, the advantage of
 international trade are also accompanied with additional risk broadly categorized as

                      Country Risk : It is a risk of an exporter not receiving his payments
                      from the importer due to some country specific reasons It is
                      basically related to the countries macroeconomic condition,
                      Political condition, Credibility and Social condition, even when the
                      capacity of the importer to pay is not impaired by any of these
                      reasons, the payment may not come through due to some currency
                      exchange restrictions suddenly impose by the importing country

                      Exchange Risk: Changes in Exchange Rates may have an
                      unfavorable effect on sales, prices costs and profits of exporter and
                      importers
Finance…
International Monetary System


 System of Exchange in Currencies at specific exchange rate facilitating international
 trade is called International Monetary System

 Foreign exchange rate is the price of one currency in terms of another currency

     The settlement of international transaction takes place by conversion of
     currencies into one another and the transfer of funds across nations

     Example :
      An importer in India importing goods from America has to pay the amount in
     USD , suppose 1 USD can be Brought at 50 Rupee this payment is made through
     International Monetary system
Finance…
Factors Affecting Exchange Rate

 Foreign exchange rate is the price of one currency in terms of another currency.
 Economic forces of Demand and Supply of the currencies determine the price of
 foreign currency
           Example: Suppose India and USA is in trade
                    The supply of Indian Rupee comes from Indian Market for the
 payment of goods and services from America where American Dollar is demanded
 likewise Supply of American Dollar comes from American Market who demands
 Indian Rupee for payment of goods and services from India this bilateral Demand-
 Supply determines the exchange rate of the currencies in trade

         Factors affecting the demand and supply
         1. Interest Rates
         2. Rate of Inflation
         3. Political or Military Unrest
         4. Domestic Financial Market
         5. Business Environment
         6. Economic Data
         7. Balance of trade
         8. Government Budget
         9. Rumors
Finance…
Exchange Rate Cont….




                 Fixed Exchange Rate

                 Floating Exchange Rate

                 Floating with limited flexibility




 India follows a system between a freely floating and fully managed system. This type
 of system is known as Managed float system .Exchange rates are allowed to float
 freely, but RBI intervenes when it feels necessary in the way it considers suitable.
Finance…
The Anatomy of a FOREX Quote



 The currencies are always traded in two-way quotes pairs,
          INRUSD =48.62/48.75 here USD is being bought or sold, with
 its value being expressed in terms of INR, USD is referred as the
          base currency

 Direct Vs. Indirect Quote:

          Indirect Quote : $/100 Rs : 2.0525/67 here the bank would be buying
 dollars @ $2.0567/Rs 100 and selling dollars @ $ 2.0525/Rs 100

 The corresponding Direct Quote would be : RS/$ 48.62/48.72 here the bank
 would be buying dollars @ Rs 48.62/$ and selling dollars @Rs48.72/$

 In India Direct Quote is used from August 2 1993
Finance…
BID / ASK RATE


  The rate at which a bank is ready to buy a base currency is call Bid Rate
  The rate at which a bank is ready to sell the base currency is called as Ask rate

  All the information is express in a quote as given
            INRUSD = 48.62/48.72 which means the currency in trade is USD
  express in Indian Rupee where bank is ready to buy USD @ 48.62 Rs
  and is ready to sell USD @ 48.72 Rs
Thank You

Mais conteúdo relacionado

Mais procurados

2008 H2 International Trade Lecture 1
2008 H2 International Trade Lecture 12008 H2 International Trade Lecture 1
2008 H2 International Trade Lecture 1tjcg1707
 
Comparative vs absolute advantage
Comparative vs absolute advantageComparative vs absolute advantage
Comparative vs absolute advantageDevraj Chamlagai
 
International Trade Theories
International Trade TheoriesInternational Trade Theories
International Trade TheoriesAnkit Porwal
 
Factor endowments and the heckscher ohlin theory (chapter 5)
Factor endowments and the heckscher ohlin theory (chapter 5)Factor endowments and the heckscher ohlin theory (chapter 5)
Factor endowments and the heckscher ohlin theory (chapter 5)Rasel Ahamed
 
Introduction to International Trade and Economy
Introduction to International Trade and EconomyIntroduction to International Trade and Economy
Introduction to International Trade and EconomyIftekhar Chowdhury
 
International economic ch02
International economic ch02International economic ch02
International economic ch02Judianto Nugroho
 
International TradeTheories
International TradeTheoriesInternational TradeTheories
International TradeTheoriesZaheer Khawaja
 
Factor Endowments And Effect On Trade
Factor Endowments And Effect On TradeFactor Endowments And Effect On Trade
Factor Endowments And Effect On TradeRudo Chengeta
 
Classical Theory Of International Trade
Classical Theory Of International TradeClassical Theory Of International Trade
Classical Theory Of International TradeKRN_KPR2010
 
11. theories of international trade
11. theories of international trade11. theories of international trade
11. theories of international tradesantumane
 
Meeting 3 - Rybczynski theorem (International Economics)
Meeting 3 - Rybczynski theorem (International Economics)Meeting 3 - Rybczynski theorem (International Economics)
Meeting 3 - Rybczynski theorem (International Economics)Albina Gaisina
 
Chapter 3 (International Trade Theory)
Chapter 3 (International Trade Theory)Chapter 3 (International Trade Theory)
Chapter 3 (International Trade Theory)mbamgtjnu
 
International Trade
International TradeInternational Trade
International Tradetutor2u
 
Real Estate Dubai2015
Real Estate Dubai2015Real Estate Dubai2015
Real Estate Dubai2015Gourav Kalra
 
Hecsher-ohlin theorem, Modern theory of international trade.
Hecsher-ohlin theorem, Modern theory of international trade.Hecsher-ohlin theorem, Modern theory of international trade.
Hecsher-ohlin theorem, Modern theory of international trade.hailey college of commerce
 
Comparison among trade theories
Comparison among trade theoriesComparison among trade theories
Comparison among trade theoriesvyas vemuri
 
Lecture 1: Introduction to International Trade
Lecture 1: Introduction to International TradeLecture 1: Introduction to International Trade
Lecture 1: Introduction to International TradeRashedul Kabir (Shimul)
 

Mais procurados (20)

2008 H2 International Trade Lecture 1
2008 H2 International Trade Lecture 12008 H2 International Trade Lecture 1
2008 H2 International Trade Lecture 1
 
Comparative vs absolute advantage
Comparative vs absolute advantageComparative vs absolute advantage
Comparative vs absolute advantage
 
International Economics
International EconomicsInternational Economics
International Economics
 
International Trade Theories
International Trade TheoriesInternational Trade Theories
International Trade Theories
 
Factor endowments and the heckscher ohlin theory (chapter 5)
Factor endowments and the heckscher ohlin theory (chapter 5)Factor endowments and the heckscher ohlin theory (chapter 5)
Factor endowments and the heckscher ohlin theory (chapter 5)
 
Introduction to International Trade and Economy
Introduction to International Trade and EconomyIntroduction to International Trade and Economy
Introduction to International Trade and Economy
 
International economic ch02
International economic ch02International economic ch02
International economic ch02
 
International TradeTheories
International TradeTheoriesInternational TradeTheories
International TradeTheories
 
Factor Endowments And Effect On Trade
Factor Endowments And Effect On TradeFactor Endowments And Effect On Trade
Factor Endowments And Effect On Trade
 
Classical Theory Of International Trade
Classical Theory Of International TradeClassical Theory Of International Trade
Classical Theory Of International Trade
 
11. theories of international trade
11. theories of international trade11. theories of international trade
11. theories of international trade
 
Meeting 3 - Rybczynski theorem (International Economics)
Meeting 3 - Rybczynski theorem (International Economics)Meeting 3 - Rybczynski theorem (International Economics)
Meeting 3 - Rybczynski theorem (International Economics)
 
Chapter 3 (International Trade Theory)
Chapter 3 (International Trade Theory)Chapter 3 (International Trade Theory)
Chapter 3 (International Trade Theory)
 
International Trade
International TradeInternational Trade
International Trade
 
Real Estate Dubai2015
Real Estate Dubai2015Real Estate Dubai2015
Real Estate Dubai2015
 
Hecsher-ohlin theorem, Modern theory of international trade.
Hecsher-ohlin theorem, Modern theory of international trade.Hecsher-ohlin theorem, Modern theory of international trade.
Hecsher-ohlin theorem, Modern theory of international trade.
 
International trade
International tradeInternational trade
International trade
 
Comparison among trade theories
Comparison among trade theoriesComparison among trade theories
Comparison among trade theories
 
International trade
International tradeInternational trade
International trade
 
Lecture 1: Introduction to International Trade
Lecture 1: Introduction to International TradeLecture 1: Introduction to International Trade
Lecture 1: Introduction to International Trade
 

Semelhante a Forex and international trade

JM Chapter 1 Overview of International Business.pptx
JM Chapter 1 Overview of International Business.pptxJM Chapter 1 Overview of International Business.pptx
JM Chapter 1 Overview of International Business.pptxJesilin James
 
Theories of international trade
Theories of international tradeTheories of international trade
Theories of international tradenisaa89
 
13InternationalTrade_Lecture.pdf
13InternationalTrade_Lecture.pdf13InternationalTrade_Lecture.pdf
13InternationalTrade_Lecture.pdfAmbassadors1
 
Commerce Material 2nd year
Commerce Material 2nd yearCommerce Material 2nd year
Commerce Material 2nd yearArun Kumar
 
gainsfromtradef-100716211748-phpapp02.pdf
gainsfromtradef-100716211748-phpapp02.pdfgainsfromtradef-100716211748-phpapp02.pdf
gainsfromtradef-100716211748-phpapp02.pdfwexop40522
 
introduction.pptx
introduction.pptxintroduction.pptx
introduction.pptxNabilAlimi2
 
international trade and balance of payments for 2nd semester economics for BBA
international trade and balance of payments for 2nd semester economics for BBAinternational trade and balance of payments for 2nd semester economics for BBA
international trade and balance of payments for 2nd semester economics for BBAginish9841502661
 
International trade
International tradeInternational trade
International tradeDaksh Bapna
 
NATIONAL INCOME 2024 PDF SPCC_5b584145-f12a-4f7f-b464-2dcfcb6ef6eb.pdf
NATIONAL INCOME 2024 PDF SPCC_5b584145-f12a-4f7f-b464-2dcfcb6ef6eb.pdfNATIONAL INCOME 2024 PDF SPCC_5b584145-f12a-4f7f-b464-2dcfcb6ef6eb.pdf
NATIONAL INCOME 2024 PDF SPCC_5b584145-f12a-4f7f-b464-2dcfcb6ef6eb.pdfDakshHalai
 
Aspects of International Trade
Aspects of International TradeAspects of International Trade
Aspects of International Tradetutor2u
 
Foreign Direct Investment (FDI) in Bangladesh
Foreign Direct Investment (FDI) in BangladeshForeign Direct Investment (FDI) in Bangladesh
Foreign Direct Investment (FDI) in BangladeshTAREK MAHMUD
 

Semelhante a Forex and international trade (20)

JM Chapter 1 Overview of International Business.pptx
JM Chapter 1 Overview of International Business.pptxJM Chapter 1 Overview of International Business.pptx
JM Chapter 1 Overview of International Business.pptx
 
PPT-IFM.pdf
PPT-IFM.pdfPPT-IFM.pdf
PPT-IFM.pdf
 
PPT-IFM.pdf
PPT-IFM.pdfPPT-IFM.pdf
PPT-IFM.pdf
 
PPT-IFM.pdf
PPT-IFM.pdfPPT-IFM.pdf
PPT-IFM.pdf
 
Theories of international trade
Theories of international tradeTheories of international trade
Theories of international trade
 
Chap13
Chap13Chap13
Chap13
 
Chap13
Chap13Chap13
Chap13
 
13InternationalTrade_Lecture.pdf
13InternationalTrade_Lecture.pdf13InternationalTrade_Lecture.pdf
13InternationalTrade_Lecture.pdf
 
Chapter 10
Chapter 10Chapter 10
Chapter 10
 
Commerce Material 2nd year
Commerce Material 2nd yearCommerce Material 2nd year
Commerce Material 2nd year
 
gainsfromtradef-100716211748-phpapp02.pdf
gainsfromtradef-100716211748-phpapp02.pdfgainsfromtradef-100716211748-phpapp02.pdf
gainsfromtradef-100716211748-phpapp02.pdf
 
introduction.pptx
introduction.pptxintroduction.pptx
introduction.pptx
 
international trade and balance of payments for 2nd semester economics for BBA
international trade and balance of payments for 2nd semester economics for BBAinternational trade and balance of payments for 2nd semester economics for BBA
international trade and balance of payments for 2nd semester economics for BBA
 
International trade
International tradeInternational trade
International trade
 
NATIONAL INCOME 2024 PDF SPCC_5b584145-f12a-4f7f-b464-2dcfcb6ef6eb.pdf
NATIONAL INCOME 2024 PDF SPCC_5b584145-f12a-4f7f-b464-2dcfcb6ef6eb.pdfNATIONAL INCOME 2024 PDF SPCC_5b584145-f12a-4f7f-b464-2dcfcb6ef6eb.pdf
NATIONAL INCOME 2024 PDF SPCC_5b584145-f12a-4f7f-b464-2dcfcb6ef6eb.pdf
 
Tadele Power Point.pptx
Tadele Power Point.pptxTadele Power Point.pptx
Tadele Power Point.pptx
 
Aspects of International Trade
Aspects of International TradeAspects of International Trade
Aspects of International Trade
 
Foreign Direct Investment (FDI) in Bangladesh
Foreign Direct Investment (FDI) in BangladeshForeign Direct Investment (FDI) in Bangladesh
Foreign Direct Investment (FDI) in Bangladesh
 
International Trade
International TradeInternational Trade
International Trade
 
B321 Macroeconomics Notes
B321 Macroeconomics Notes B321 Macroeconomics Notes
B321 Macroeconomics Notes
 

Último

TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...TalentView
 
Developing Coaching Skills: Mine, Yours, Ours
Developing Coaching Skills: Mine, Yours, OursDeveloping Coaching Skills: Mine, Yours, Ours
Developing Coaching Skills: Mine, Yours, OursKaiNexus
 
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfChicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfSourav Sikder
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyHanna Klim
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Reportamberjiles31
 
Fabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and FestivalsFabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and FestivalsWristbands Ireland
 
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...AustraliaChapterIIBA
 
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGUNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGlokeshwarmaha
 
Michael Vidyakin: Introduction to PMO (UA)
Michael Vidyakin: Introduction to PMO (UA)Michael Vidyakin: Introduction to PMO (UA)
Michael Vidyakin: Introduction to PMO (UA)Lviv Startup Club
 
MoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor PresentationMoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor Presentationbaron83
 
Upgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsUpgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsIntellect Design Arena Ltd
 
7movierulz.uk
7movierulz.uk7movierulz.uk
7movierulz.ukaroemirsr
 
Plano de marketing- inglês em formato ppt
Plano de marketing- inglês  em formato pptPlano de marketing- inglês  em formato ppt
Plano de marketing- inglês em formato pptElizangelaSoaresdaCo
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsP&CO
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfCharles Cotter, PhD
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...IMARC Group
 
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John MeulemansBCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John MeulemansBBPMedia1
 
NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023Steve Rader
 

Último (20)

TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
 
Developing Coaching Skills: Mine, Yours, Ours
Developing Coaching Skills: Mine, Yours, OursDeveloping Coaching Skills: Mine, Yours, Ours
Developing Coaching Skills: Mine, Yours, Ours
 
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfChicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agency
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Report
 
Fabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and FestivalsFabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and Festivals
 
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
 
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGUNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
 
Michael Vidyakin: Introduction to PMO (UA)
Michael Vidyakin: Introduction to PMO (UA)Michael Vidyakin: Introduction to PMO (UA)
Michael Vidyakin: Introduction to PMO (UA)
 
MoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor PresentationMoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor Presentation
 
Upgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsUpgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking Applications
 
7movierulz.uk
7movierulz.uk7movierulz.uk
7movierulz.uk
 
Plano de marketing- inglês em formato ppt
Plano de marketing- inglês  em formato pptPlano de marketing- inglês  em formato ppt
Plano de marketing- inglês em formato ppt
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizations
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
 
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John MeulemansBCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
 
NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023
 

Forex and international trade

  • 1. FOREX AND INTERNATIONAL TRADE By : Nokesh Hirendra Lele Roll No: 04 Ex-MBA Sem 2
  • 2. Why International Trade ?  The unevenly distributed natural resources on the globe resulted in interdependency amongst nations, giving rise to exchange of goods and services to meet mutual requirements  Resulting in International Trade  Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation
  • 3. Import / Export…  Purchase of Goods and Services from International Market for sale or consumption in Domestic Market is called Import  E.g. India Import Crude Oil , Iron ore from international market  Goods and Services produced in Domestic Market and sold in International Market is called Export  E.g. India Export Engineering Good , Iron & Steel
  • 4. A economy which encourages international trade is called as open economy. A useful measure of openness is the ratio of a country‘s export or import to its GDP India’s Import Export % to GDP 35 1 30 0 25 -1 20 -2 15 -3 10 -4 5 -5 0 -6 1976 1986 2002 1970 2004 2006 2010 1982 2000 1964 1966 1974 1978 1980 1984 1988 1992 2008 1960 1968 1962 1972 1994 1990 1996 1998 Export % GDP Import % GDP Deficit
  • 5. Economics… Basic Economic Theories of International Trade: Answer to the question why?  Theory of Absolute Advantage  Theory of Comparative Advantage  Heckscher – Ohlin Model
  • 6. Economics… Theory of Absolute Advantage By : Adam Smith 1776 International trade takes place because one country may be more efficient in producing a particular good than another country, and that other country may be capable of producing some other good more efficiently than the first one. This provides an incentive to trade as both the countries can benefit from specialization and the resultant increase in productivity Example: Country Aircraft Supercomputer Country A 20 Labor Units 10 Labor Units Country B 10 Labor Units 20 Labor Units *Assuming all other factor of production are used in equal amount Here, Country A enjoy absolute advantage in producing Supercomputer Country B enjoy absolute advantage in producing Aircraft Let’s assume country A exchange 1 supercomputer for 1 Aircraft Then Country A will be able to use 10 Labor to produce a Supercomputer and get a Aircraft and use other 10 Labor to product supercomputer for domestic use Country B will also benefit in same fashion
  • 7. Economics… Theory of Comparative Advantage By : David Ricardo 1817 According to the absolute advantage theory, two countries enter into trade when both of them hold an absolute advantage in the production of at least one product. The question arises here is whether two countries can benefit by trading with each other even if one of them has an absolute advantage in all the commodities. According to the theory of Comparative Advantage propounded by the English Economist David Ricardo in 1817,trade is possible as long as both the countries enjoy comparative advantage in at least one of the product Example: Labor Hour Required to produce Country 1 Unit of Steel 1 Unit of Cement Country A 5 10 Country B 15 20 *Assuming all other factor of production are used in equal amount Here, Country A enjoys absolute advantage in producing both the commodities Let’s assume that both the countries have 600 unit of labor-hour at their disposal which can be either use for producing Steel or Cement
  • 8. Economics… Theory of Comparative Advantage cont… Labor Hour Required to produce *assuming 600 labor hours are available Country 1 Unit of Steel (Max) 1 Unit of Cement (Max) Country A 600/ 5 = 120 600/10 = 60 Country B 600/15 = 40 600/20 = 30 For producing each unit of steel, the production of a particular number of units of cement has to be forgone and vice versa. The quantity of cement thus forgone in order to product one unit of steel is called the Opportunity cost of steel Opportunity cost involve in production of Steel and Cement Country 1 Unit of Steel 1 Unit of Cement Country A 60/120 = 0.5 120/60 = 2 Country B 30/40 = 0.75 40/30 = 1.33 India has a comparative advantage in providing world class services in low cost. So we earn a net export of 43,747 cr (April June 2011) from service sector
  • 9. Economics… Heckscher-Ohline Model By : Eli Heckscher and Bertil Ohlin 1920 According to this theory, there are two types of products Labor Intensive and Capital This model explores the possibility of two nations operating at the same level of efficiency, benefiting by trading with each other reason can be traced to the difference in their Factor Endowment The labor rich country is more likely to produce labor intensive goods and the capital rich country most probably produce capital intensive goods. This countries will then trade these goods and reap the benefits of international trade India has a high skilled labor force available comparatively at cheap rate which is very attractive to foreign capital giving a room for development in both Service sector and Manufacturing Sectors So Engineering goods as well as Software Services
  • 10. Economics… Balance Of Payment A country’s Balance of Payment is a systematic statement of all economic transaction between that country and the rest of the world. Its major components are the current account and the financial account. I. Current Account Merchandise (or Trade Balance) Services Investment Income Unilateral Transfer II. Capital Account Private Government Official Reserve Changes Other The Balance of payment has two fundamental parts. The current account represents the spending and receipt on goods and services along with transfers. The financial account includes purchases and sales of financial assets and liabilities. An important principle is that two must always sum to zero Current Account + Financial Account –I + II = 0
  • 11. Economics… GOVERNMENT TOOLS Despite all the obvious benefits of international trade , Government have an inclination to put up trade barriers in order to discourage import 1. Tariff Barriers 2. International Price Fixing 3. Exchange Controls 4. Non-Tariff Barriers 1. Quota 2. Embargo 3. Subsidies to Local Goods 4. Local Content Requirement
  • 12. Economics… Risk Involved in International Trade Risk and reward always go hand-in hand True to this maxim, the advantage of international trade are also accompanied with additional risk broadly categorized as Country Risk : It is a risk of an exporter not receiving his payments from the importer due to some country specific reasons It is basically related to the countries macroeconomic condition, Political condition, Credibility and Social condition, even when the capacity of the importer to pay is not impaired by any of these reasons, the payment may not come through due to some currency exchange restrictions suddenly impose by the importing country Exchange Risk: Changes in Exchange Rates may have an unfavorable effect on sales, prices costs and profits of exporter and importers
  • 13. Finance… International Monetary System System of Exchange in Currencies at specific exchange rate facilitating international trade is called International Monetary System Foreign exchange rate is the price of one currency in terms of another currency The settlement of international transaction takes place by conversion of currencies into one another and the transfer of funds across nations Example : An importer in India importing goods from America has to pay the amount in USD , suppose 1 USD can be Brought at 50 Rupee this payment is made through International Monetary system
  • 14. Finance… Factors Affecting Exchange Rate Foreign exchange rate is the price of one currency in terms of another currency. Economic forces of Demand and Supply of the currencies determine the price of foreign currency Example: Suppose India and USA is in trade The supply of Indian Rupee comes from Indian Market for the payment of goods and services from America where American Dollar is demanded likewise Supply of American Dollar comes from American Market who demands Indian Rupee for payment of goods and services from India this bilateral Demand- Supply determines the exchange rate of the currencies in trade Factors affecting the demand and supply 1. Interest Rates 2. Rate of Inflation 3. Political or Military Unrest 4. Domestic Financial Market 5. Business Environment 6. Economic Data 7. Balance of trade 8. Government Budget 9. Rumors
  • 15. Finance… Exchange Rate Cont….  Fixed Exchange Rate  Floating Exchange Rate  Floating with limited flexibility India follows a system between a freely floating and fully managed system. This type of system is known as Managed float system .Exchange rates are allowed to float freely, but RBI intervenes when it feels necessary in the way it considers suitable.
  • 16. Finance… The Anatomy of a FOREX Quote The currencies are always traded in two-way quotes pairs, INRUSD =48.62/48.75 here USD is being bought or sold, with its value being expressed in terms of INR, USD is referred as the base currency Direct Vs. Indirect Quote: Indirect Quote : $/100 Rs : 2.0525/67 here the bank would be buying dollars @ $2.0567/Rs 100 and selling dollars @ $ 2.0525/Rs 100 The corresponding Direct Quote would be : RS/$ 48.62/48.72 here the bank would be buying dollars @ Rs 48.62/$ and selling dollars @Rs48.72/$ In India Direct Quote is used from August 2 1993
  • 17. Finance… BID / ASK RATE The rate at which a bank is ready to buy a base currency is call Bid Rate The rate at which a bank is ready to sell the base currency is called as Ask rate All the information is express in a quote as given INRUSD = 48.62/48.72 which means the currency in trade is USD express in Indian Rupee where bank is ready to buy USD @ 48.62 Rs and is ready to sell USD @ 48.72 Rs