INTERNATIONAL FLOW OF FUNDS

GROUP NO # 10

Þ SHUMAILA AKBAR (01)Þ EMAD FARRUKH (64)Þ MUNEEBA SARDAR (29)Þ HARIS (31)Þ Amir Nawaz (23)

TABLE OF CONTENTS:

IMPORTANCE OF INTERNATIONAL FLOW OF FUNDS.

BALANCE OF PAYMENT FACTORS AFFECTING INTERNATIONAL

TRADE FLOWS INTERNATIONAL CAPITAL FLOW TRADE ISSUES AGENCIES FACILITATING INTERNATIONAL

TRADE

IMPORTANCE OF INTERNATIONAL FLOW OF FUNDS

Economic development Foreign exchange earnings Market expansion and increase in competition Increase in local and foreign investment Increase national income and employment Lower production costs

BALANCE OF PAYMENT A MEASURE OF INTERNATIONAL FLOW OF FUNDS

The balance of payments is a statistical statement that systematically summarizes, for a specific time period, the economic transactions of an economy with the rest of the world.

It accounts for transactions by businesses, individuals, and the government.

COMPONENTS OF BALANCE OF PAYMENT

1) CURRENT ACCOUNT: The summary of flow of funds due to• purchase of goods or services or • provision of income on financial assets

or• Transfers of governments

SUB SECTIONS:I. Payments for merchandise and servicesII. Factor income payments III. Transfer payments

COMPONENTS OF BALANCE OF PAYMENT2) CAPITAL ACCOUNT:

It includes the value of non-produced non-financial assets that are transferred across country borders, such as:

PatentsTrade marks

COMPONENTS OF BALANCE OF PAYMENT

3) FINANCIAL ACCOUNT:

I. Direct foreign investmentII. Portfolio investmentIII. Other capital investment

COMPONENTS OF BALANCE OF PAYMENT

4) OFFICIAL RESERVE TRANSACTIONS:The transactions in the form of international reserve assets such as gold and major currencies.

5) ERRORS AND OMISSIONS:Measurement errors can occur when attempting to measure the value of funds transferred into or out of the country.

US BALANCE OF TRADE

After World War II, the US experienced a large balance-of-trade surplus.

During the last decade, the US has experienced balance-of-trade deficit.

US current account balance for 2013 was -$400.3 billion and in 2014 -$410.6 billion. US capital account balance in 2013 was -

$5,383.0 billion and in 2014 was -$6,915.3 billion .

FACTORS AFFECTING INTERNATIONAL TRADE FLOW OF FUNDS

1) Inflation2) National income3) Exchange rates4) Government policies5) Natural factors6) Political factors

FACTORS AFFECTING INTERNATIONAL TRADE FLOW OF FUNDS

INFLATION:A relative increase in a country’s inflation rate

Increases its imports Decreases its exports Decrease it’s current account

FACTORS AFFECTING INTERNATIONAL TRADE FLOW OF FUNDS

NATIONAL INCOME: A relative increase in a country’s income level will

Increase its imports Decrease its exports Decrease it’s current account

FACTORS AFFECTING INTERNATIONAL TRADE FLOW OF FUNDS

GOVERNMENT POLICIES: A country’s government can have a major effect on its balance of trade due to its policies

Subsidies for exporters Restrictions on imports Lack of restrictions on piracy

FACTORS AFFECTING INTERNATIONAL TRADE FLOW OF FUNDS

IMPACT OF EXCHANGE RATES:Each country’s currency is valued in terms of other currencies through the use of exchange rates.

Appreciation of home currency Depreciation of home currency

FACTORS AFFECTING INTERNATIONAL TRADE FLOW OF FUNDS

NATURAL CAUSES: E.g. flood and earth quake

POLITICAL CAUSES: Relationship with other countries Barriers i.e. tariff and quota

INTERNATIONAL CAPITAL FLOWS

The movement of money on international level for the purpose of investment, trade or production. 

TYPES OF INTERNATIONAL CAPITAL FLOW:

Direct foreign investment International portfolio investment

SOME COST AND REVENUE RELATED MOTIVES OF DFI Attract new sources of demand Exploit monopolistic advantages Enter profitable markets. React to trade restrictions. Diversify internationally. Fully benefit from economies of scale. Use foreign factors of production. Use foreign raw materials and

technology.

FACTORS AFFECTING DFI

1. Changes in restrictions2. Privatization3. Potential economic growth4. Tax rates5. Exchange rates

FACTORS AFECTING INTERNATIONAL PORTFOLIO INVESTMENT

1. Tax rate on interest or dividends2. Interest rates 3. Exchange rates

IMPACT OF INTERNATIONAL CAPITAL FLOWS

INTERNATIONAL TRADE ISSUES1) Events that increase international trade:I. Removal of Berlin wall.1986II. Single European Act.1980 act 1987 negotiated still

1992III. North American Free Trade Agreement (NAFTA).1993IV. General Agreement on Tariffs and Trade (GATT)1993

result of uruguay round started in1986 across 117 countries

V. Inception of the Euro.1999.other transaction 2001 completely replaced 2002.

VI. Expansion of the European Union.2004. Bulgaria and Romania 2007.

VII. Central American Trade Agreement (CAFTA)2006.dominican republic central American countries and Caribbean nation.

INTERNATIONAL TRADE ISSUES

2) Trade Friction: International trade and government

strategies. Using exchange rate as a policy. Outsourcing. Trade policies and politics.

TRADE FRICTION1) INTERNATIONAL TRADE AND GOVERNMENT STRATEGIES:

Tariffs and Quotas Environmental restrictions Child labor laws Govt. allow firms to offer bribes to large

customers for industrial development. Subsidies to exporters Tax break

TRADE FRICTION

2) OUTSOURCING:The process of subcontracting to a third party in another country to provide supplies or services that were previously produced internally.

Impacts of outsourcing on value of MNC’s.

Criticism on outsourcing. Managerial decisions.

TRADE FRICTION 3)EXCHANGE RATE AS A POLICY

4) TRADE POLICIES AND POLITICS

AGENCIES THAT FACILITATE INTERNATIONAL TRADE FLOWS

1) International monetary fund2) World bank3) World trade organization4) International financial corporation5) International development association6) Bank for international settlements7) Organization for economic corporation

and development8) Regional development agencies

INTERNATIONAL MONETARY FUND: International Monetary Fund(IMF) was

formed in 1944. It consist of 188 members. OBJECTIVES OF IMF: Co-operation among the countries on

international monetary issues. Stability in exchange rates. Correct imbalances of international

payments. Promote free trade.

WORLD BANK Established in 1944. Primary objectives is to make loans to

countries to enhance economic development.

Main source of funds is the scale of bonds and other debt instruments to private investors and governments. The World Bank has a profit-oriented philosophy.

World bank provided a small portion of financing needed by developing countries.

To spread its funds by entering into co-financing

Official Aid Agencies. Development agencies may be join the world bank in finance development projects in low income countries.

Export credit agencies. the world bank cofinaces some capital intensive projects that are also financed through export credit agencies

Commercial banks. The world bank has joined with commercial banks to provide financing for private-sector development.

WORLD TRADE ORGANIZATION

Started operation in 1995 with 81 members.

Consist of 161 members The World Trade Organization (WTO) is

the only global international organization dealing with the rules of trade between nations.

The goal is to help producers of goods and services, exporters, and importers conduct their business

INTERNATIONAL FINANCIAL CORPORATION

Established in 1956  Has 184 member countries, a group that

collectively determines our policies. Is a member of the World Bank Group Largest global development institution

focused exclusively on the private sector in developing countries. 

 Allows companies and financial institutions in emerging markets to create jobs, generate tax revenues, improve corporate governance and environmental performance, and contribute to their local communities

INTERNATIONAL DEVELOPMENT ASSOCIATION

Part of the World Bank that helps the world’s poorest countries.

Established in 1960 IDA aims to living conditions

reduce poverty by providing loans (called “credits”) and grants for programs that boost economic growth and reduce inequalities.

Largest sources of assistance for the world’s 771 poorest countries, 39 of which are in African countries.

INTERNATIONAL DEVELOPMENT ASSOCIATION

It is the single largest source of donor funds for basic social services in these IDA-financed operations deliver positive change for 2.8 billion people, the majority of whom survive on less than $2 a day.

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