International Economics Chapter 1: 1

International Economics I 2

INTERNATIONAL ECONOMICS? “International economics is that branch of Economic Science which studies the causes & consequences of economic interactions between the nations.”

2. “International economic studies how economic interactions leads to inter-country & intra-country allocations of the scarce resources aimed at increasing the economic well-being of their people.”

Different Nations 3.International economics deals with the economic interdependence among the nations of the world.”

ECONOMIC INTERDEPENDENCE Through the sale & purchase of goods & services Through the sale & purchase of financial assets Through MNCs( Multinational corporations) Through domestic economic policies

Trade Purchase and Sale

TRADE Trade:-Exchange of goods & services between two individuals or association of individuals. Domestic Trade:-Exchange of goods & services between two individuals or firms in the same country. Foreign Trade:-when exchange of goods & services takes place between two individuals or firms of two different countries. Trade:-Exchange of goods & services between two individuals or association of individuals. Domestic Trade:-Exchange of goods & services between two individuals or firms in the same country. Foreign Trade:-when exchange of goods & services takes place between two individuals or firms of two different countries.

Advantages Use of resources Wider range of commodity Promote competition Speedy industrialization Reduction in prices Disadvantages Exhaustion of resources Effects on domestic industry Consumption habits Provide footholds to foreigners Time of emergency

The main advantages of international business to a country are as follows. 1.Economy in the use of productive resources: each country tries to produce those goods in which it is best suited. As the resources of each country fully exploited. There is thus, a great economy in the use of productive resources. 2.Wider rang of commodities: international business make it possible for each country to enjoy the wide rang of commodities. 3.Promotes competition: international business promote competition among different countries. The produces in home country, being afraid of foreign competition, keep the price of their product at reasonable level. 4.Speedy Industrialization: international business enable a back word country to acquire skill, machinery and other capital equipments from advance countries for speeding up industrialization. 5.Fall of price: a country can export her surplus products to a country which is need of them. The home price are, thus, prevented from falling. Advantages of International Business

The disadvantages of international business are as follows, 1.Exhaustion of resources: in order to earn present export advantages a country may exploit her limited natural resources beyond proper limits. This may lead to exhaustion of essential resources like iron, coal, oil etc. 2.Effect on domestic industries: if no restriction are placed on foreign trade, it may ruin the domestic industries. 3.Effect on consumption habits: sometime it so happens that the trader in order to make profits imports commodities which are very harmful and injurious for the people. For instance, opium, wine, arms etc. 4.Time of emergency: if a country enjoying the monopoly of exports or needs imports, it may vary dangerous during time of emergency, like war. The country may not be able to get profit or essential supplies. 5.Provides foothold to the foreigners: foreign trade provides foothold to the foreigners in the country. For the example the role of East India company came to sub continent as traders and than hold the whole government of subcontinent. Disadvantages of international business.

MNC’s( Multinational corporations) MNC’s? A head quarter in one country but having operation in other countries for examples, Suzuki, ford motors, MacDonald, shell etc are MNC’s MNC’s? A head quarter in one country but having operation in other countries for examples, Suzuki, ford motors, MacDonald, shell etc are MNC’s Explanation: A large scale business, where the main head office situated in one country while the business operation perform in another country or countries is called Multinational corporation. Explanation: A large scale business, where the main head office situated in one country while the business operation perform in another country or countries is called Multinational corporation.

Activities of Multinational Corporations ( MNC’s) Exports and imports Foreign Direct investment Explanation: Normally any international business in the form of MNC’s perform two type of business operation through out the world, 1. The first one, Exports and Imports, 2. And the second one is Foreign Direct Investment Explanation: Normally any international business in the form of MNC’s perform two type of business operation through out the world, 1. The first one, Exports and Imports, 2. And the second one is Foreign Direct Investment

Export Goods- Money Comes Into the Country 14

Import Goods- Money Goes Out of Country 15

Explanation Exports: Goods and services produced by a firm in one country and then sent into another country is called exports. Imports: goods and services produced in one country and bought in by another country is known as imports.

FDI ? The investment of equity funds in another country or countries known as Foreign Direct investment. FDI ? The investment of equity funds in another country or countries known as Foreign Direct investment. Foreign Direct Investment

The drivers of International Business and many companies wants to establish a place in world market by setting business operations in other country of countries. These drivers/firms or companies needs a large market share through out the world. So it is necessary to established their production unit or units out side from their home country. Why FDI is important?

End of Chapter 1 ANY QUESTION ?

End of Chapter # 1 Thanks By Muhammad Irfan 20