Chapter 1 Globalization Management 3460 Institutions and Practices in International Finance Fall 2003 Greg Flanagan

September 9-11, The Economy The Agents Households—maximize utility* Firms—maximize profit (shareholder equity*) Governments—maximize public welfare* * Working hypotheses

September 9-11, The Economy Real Elements Resources—land, labour & capital Production—goods & services Consumption—utility

September 9-11, The Economy Monetary Elements Incomes Costs Savings/Investment  Financial Intermediaries

September 9-11, The Economy: An Overview Governments Financial Intermediaries Firms Households Goods & services Labour, land, and capital saving Investment Rest of the World Rules & regulations Taxes $ Goods & services Wages, rent, interest, and profits $ $ Revenue Foreign Exchange

September 9-11,

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8 Expenditures by function all governments Function Health Social welfare Education Trans & Com Protection Debt charges Other Total100 Table 1.4

September 9-11, Government Revenues and Expenditures by Level of Government Year RevExpRevExpRevExp Federal Provincial Local Table 1.5

September 9-11, Sources of Revenue all governments Revenue Personal Income Tax Corporate Income Tax Payroll Taxes Customs, excises and sales tax Property Tax Investment income Other revenue Table 1.6

September 9-11,

September 9-11, Trade Expanded production/consumption possibilities set Comparative advantage Economies of scale

September 9-11, Comparative advantage Differing opportunity costs production possibilities < consumption possibilities

September 9-11, Economies of Scale

September 9-11, Limitations to Trade Market imperfections Transaction costs Transportation costs Information costs Cultural/political/legal differences Loss of sovereignty Strategic resources/industries

September 9-11, Risks Liabilities Foreign exchange fluctuations Political

September 9-11, Globalization Trade Liberalization WTO (GATT); NAFTA; EU; etc. Financial Integration i.e Euro Emerging stock markets mutiple listings Multinational (transnational) corporations Privatization