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

2. September 9-11, 2003 2 The Economy The Agents Households—maximize utility* Firms—maximize profit (shareholder equity*) Governments—maximize public welfare* * Working hypotheses

3. September 9-11, 2003 3 The Economy Real Elements Resources—land, labour & capital Production—goods & services Consumption—utility

4. September 9-11, 2003 4 The Economy Monetary Elements Incomes Costs Savings/Investment  Financial Intermediaries

5. September 9-11, 2003 5 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

6. September 9-11, 2003 6

7. 7

8. 8 Expenditures by function all governments Function193319632001 Health3.79.216.6 Social welfare141525.8 Education11.316.214.8 Trans & Com9.412.24 Protection4.247.8 Debt charges31.58.514.8 Other30.234.716.2 Total100 Table 1.4

9. September 9-11, 2003 9 Government Revenues and Expenditures by Level of Government Year192619602000 RevExpRevExpRevExp Federal44.93860.25147.239 Provincial182021.82541.742 Local37.14217.32511.119 Table 1.5

10. September 9-11, 2003 10 Sources of Revenue all governments Revenue193419642001 Personal Income Tax4.320.732.4 Corporate Income Tax7.415.710.5 Payroll Taxes2.75.57.5 Customs, excises and sales tax34.930.819.6 Property Tax30.812.59.4 Investment income5.26.98.2 Other revenue14.77.912.3 Table 1.6

11. September 9-11, 2003 11

12. September 9-11, 2003 12 Trade Expanded production/consumption possibilities set Comparative advantage Economies of scale

13. September 9-11, 2003 13 Comparative advantage Differing opportunity costs production possibilities < consumption possibilities

14. September 9-11, 2003 14 Economies of Scale

15. September 9-11, 2003 15 Limitations to Trade Market imperfections Transaction costs Transportation costs Information costs Cultural/political/legal differences Loss of sovereignty Strategic resources/industries

16. September 9-11, 2003 16 Risks Liabilities Foreign exchange fluctuations Political

17. September 9-11, 2003 17 Globalization Trade Liberalization WTO (GATT); NAFTA; EU; etc. Financial Integration i.e Euro Emerging stock markets mutiple listings Multinational (transnational) corporations Privatization