1. Global Business Environments
MNI 3701
Revision Slides (Part Two)

2. Contents:
Basic overview of Chapters 6 – 8 of the prescribed book - Global Trade and Investments
6 - Global Monetary Systems and Foreign exchange markets
7 – The Political Economy
8 – Foreign direct investment (FDI) and capital markets

3. Chapter 6 - Monetary systems and foreign exchange markets
Key Concepts that you should know:
The International Monetary System
The Foreign Exchange Market (functioning; structure and participants)
Foreign Exchange rates (concepts – foreign exchange; exchange rate and foreign exchange transaction; direct and indirect quotes; bid, ask, spread; spot and forward transactions; currency swaps; cross-rates and arbitrage)

4. Chapter 6 (contd). Exchange rate determination -Determinants
Law of one price; purchasing power parity;
Relationships between exchange rates; interest rates and inflation rates – the Fischer effect; the international Fischer effect
Behavioral finance
Exchange rate forecasting – market efficiency
and approaches;
International capital markets (money and capital; scope, structure and functions; euro currency; bonds; equity market.

5. 7. The Political Economy Key concepts you should know:
Regulating trade - Reasons for barriers:
1 – Protection of local jobs
2 – Import substitution
3 – Protection of infant industries
4 – Reduction of reliance on foreign suppliers
5 – Attraction of local production and foreign investment

6. Chapter 7 (contd). Reasons for barriers (contd):
6 – Reduction in balance of trade payments or deficits
7 – Promotion of exports
8 – Antidumping remedies
9 – Political objectives or retaliation
10 – Protection of national sovereignty

7. Chapter 7 (contd). Implications of trade barriers:
Generally arbitrary; discriminatory in nature and applied subjectively.
Application requires special training; supervision and administration.
Administration adds to microeconomic problems.
Encourages special-interest privileges.
Increase government intervention in trade and economic matters.

8. Chapter 7 (contd). Instruments of trade policy
1 – Tariffs: definition and types - ad valorem; export and transit;
2 – Subsidies: definition ; discouraging foreign imports and gaining export markets.
3 – Quotas: definition and types – import; voluntary export restraint (VER); local content requirements; ‘buy national’ restrictions; technical barriers

9. Chapter 7 (contd).
Dumping : definition; antidumping policies and countervailing duties.

10. 8. FDI and capital markets
Definition of FDI
Advantages relative to international portfolio
investments:
1 – FDI Does not destabilise domestic capital;
2 – FDI sensitises investors to domestic communities needs;
3 – FDI offers opportunities for firms to internationalise operations beyond licensing and exporting;
4 – Spillover effects of FDI, i.e., transfer of new production technology;
5 – Local firms and governments build absorptive capacity;
6 – FDI aids economic growth where there is a lack of domestic resource capacity

11. Chapter 8 (contd).
Different forms (acquisition; joint venture or merger; greenfield investment)
Theories ( International trade and finance theories; industrial organisation theories; transaction cost theories; the eclectic paradigm; the investment development path theory; new trade theory and knowledge capital model.

12. Chapter 8 (contd). Technology transfer
Absorptive capacity – at firm level and at country level
Economic growth theories
Emerging theoretical framework

13. Chapter 8 (contd).
Government incentives for attracting FDI: (Size, location or industry; relative cost or potential profit; altering the risks);
Advantages and disadvantages: lower corporate income tax rates; tax holidays; investment allowances and tax credits; accelerated depreciation; exemptions from indirect taxes and export processing zones;
Functions of investment promotion agencies;
Types of investment incentives- Financial and fiscal.