National income can be defined as the part of the objective income of the community including income derived from abroad which can be measured in money i.e the money value of goods and services which is produced and made available for consumption in an economy for a particular period which is usually a year. National income, also known as Gross Domestic Product (GDP) is very helpful to the economists to track the economic growth’s rate, average living standard in one country as well as the distribution of income between different groups of population (i.e. inequality gap). For measuring the national income, the national economy is viewed as follows: The national economy is considered as an aggregate of producing units combining different sectors such as agriculture, mining, manufacturing and trade and commerce. The whole national economy is viewed as a combination of individuals and household owning different kinds of factors of Continue reading
International Economics
International Fisher Effect
According to the Relative Version of Purchasing Power Parity Theory (PPP) one of the factors leading to change in exchange rate between currencies is inflation in the respective countries. As long as the inflation rate in the two countries remains equal, the exchange rate between the currencies would not be affected. When a difference or deviation arises in the inflation levels of the two countries, the exchange rate would be adjusted to reflect the inflation rate differential between the countries. The International Fisher Effect (IFE) theory is an important concept in the fields of economics and finance that links interest rates, inflation and exchange rates. Similar to the Purchasing Power Parity (PPP) theory, IFE attributes changes in exchange rate to interest rate differentials, rather than inflation rate differentials among countries. Nominal interest rates would automatically reflect differences in inflation by a purchasing power parity or no-arbitrage system. The two theories Continue reading
Note Issuance Facility (NIF)
Note Issuance Facility (NIF) offers a good mix of capital market and syndicated loan operations. Note Issuance Facility is a usual medium term, floating rate, funding instrument – it is a long-term position for the investor who has shifted their performance for short term in view of the country risks of some less developed countries. NIF is a medium term arrangement under which borrowers can issue short term papers (called a Euro note) with the underwriting support of the commercial banks. The different names given to these main facilities with some variation in its terms are revolving underwriting facility(RUF), short-term note issuance facility (SNIP), transferable revolving underwriting facility (TRUF) and Note Purchase Facility (NPF). Note Issuance Facility is the legally binding commitments of the underwriting banks to support funding for a period of say, five years. Mechanism and Documentation of Note Issuance Facility (NIF) The issuer of Note Issuance Facility Continue reading
Neo-Factor Proportions Theory
Extending Leontief’s view, some of the economists emphasize on the point that it is not only the abundance (scarcity) of a particular factor, but also the quality of that factor of production that influences the pattern of international trade. The quality is so important in their view that they analyse the trade theory in a three-factor framework instead of two-factor framework taken into account by Heckscher and Ohlin. The third factor manifests in the form of: Human capital: It is the result of better education and training.Human capital should be treated as a factor input like physical labor and capital. A country with human capital maintains an edge over other countries with regards to the export of commodities produces with the help of improved human capital. Skill Intensity: The skill intensity hypothesis is similar to human capital hypothesis as both of them explain the capital embodied in human beings. It Continue reading
Modes of Transferring Capital or Funds from Savers to Borrowers
In economics, a financial market refers to a media that allows people to buy, sell, create and exchange financial securities such as share and bonds, commodities such as basic agricultural goods and precious metals, and other fungible items of value at low transaction costs and at prices that reflect the efficient-market. Both general markets where many commodities are traded and specialized markets where only one commodity is traded exist in financial market. Markets work by placing many interested buyers and sellers in one media, thus making it easier for them to find each other. The financial markets can be divided into different types such as capital markets, commodity markets, money markets, insurance market and foreign exchange market. A saver refers to the one who deposit their money in bank, invest in company share and pays premium to an insurance company with objective to earn interest, dividend and profit. They aim Continue reading
Free Trade Zones – Definition and Meaning
In simple words, free trade means free international trade. The classical economists like Adam Smith, Ricardo and others strongly favored free trade and this doctrine held the field for nearly one hundred years. How ever later, the countries all over the world began to adhere to the policy of imposing restrictions in one form or other. History and Development of Free Trade Zones During the last 20 years, the labor charges in developed countries have increased substantially. According to a recent estimate, the labor cost is nearly 1 USD per hour for semi-skilled workers in most European Countries, U.S and Japan. This high labor cost was due to the acute shortage of both skilled and unskilled labor in most of these countries. Countries like Germany, France, Switzerland, Sweden, Austria, Belgium and England even imported laborers from other countries. Therefore, the cost of production involving a considerable labor content has become Continue reading