Globalization is the competition in an international market. The growth rate of developing nations and their acquisitions of previously first-world owned corporations indicates that the developed world no longer has the upper hand economic growth in the west has been miniscule in comparison. Success in this new global market requires the ability to accommodate the different needs of diverse consumer groups. Companies can achieve this through product and process innovations and maximize profits. Entrepreneurship is also increasingly recognized and as an alternative course to fortune as opposed to trading rare commodities. Companies from emergent economies are following the lead of their developed counterparts, issuing stocks and encouraging investment. This encouraged growth and share appreciation, surpassing past expectations. Some emerging companies’ growth has even outpaced well-known multi-national companies (MNCs) from the developed world-competing, acquiring and exploiting the endeavors and experiences of first-world MNCs. Similarly, developed nations are tapping into emerging economies, Continue reading
International Economics
The Benefits of a Single Currency System – Euro
The euro is the result of the most significant monetary reform in Europe since the Roman Empire. Although the euro can be seen simply as a mechanism for perfecting the Single European Market, facilitating free trade among the members of the Euro-zone, it is also regarded by its founders as a key part of the project of European political integration. The euro is administered by the European System of Central Banks (ESCB), composed of the European Central Bank (ECB) and the Euro-zone central banks operating in member states. The ECB (headquartered in Frankfurt am Main, Germany) has sole authority to set monetary policy; the other members of the ESCB participate in the printing, minting and distribution of notes and coins, and the operation of the Euro-zone payment system. The introduction of a single currency for many separate countries presents a number of advantages and disadvantages for the participating nations. 1. Continue reading
Significance of Balance of Payments (BoP) Data
Balance of payment records all economic transactions between a county and the rest of the countries around the world annually. The balance of payment is made up of two distinguished components respectively the current account, capital and financial accounts. Transactions such as exports and imports of goods and services, income and transfers are recorded in the current account. On the other hand transactions relating to portfolio and foreign direct investments are recorded on the capital and financial accounts. Balance of payment is an important indicator of the health of any country’s business as it reflects its international trade and investment performance. Hence, in the Balance of Payment, sources of funds are recorded as positive and uses of funds are recorded as negative. All things being equal Balance of Payment sums to zero with no overall surplus or deficit but if a country is importing more than its exports, then its Continue reading
The Role of Derivatives in the Financial Crisis
Derivative contracts are probabilistic bets on future events, they are securities with a price that are dependent upon or derived from one or more underlying assets. Many people argue that derivatives reduce systemic problems, in that participants who cannot bear certain risks are able to transfer them to stronger hands. These people believe that derivatives act to stabilize the economy, facilitate trade, and eliminate bumps for individual participants. We have now reached the stage where those who work in finance, and many who work outside finance, need to understand how derivatives work, how they are used, and how they are priced. For this reason, derivatives are at the center of everything. However, in 2008 the world witnessed a financial and economic hurricane that left massive financial and economic damages. It was universally recognized as the worst economic crash since the Great Depression. The old saying has it that success has Continue reading
The Baumol Model of Innovation
The main idea behind Baumols model is that Innovation is the motivating force behind the growth miracle of capitalism. In the neoclassical theory of the firm, firms compete based on price, but William Baumol argues that in a Capitalist economy innovation rather than price is the main competitive dimension and less innovative firms will find their markets shrinking as they lose business to their more innovative competitors. Thus, innovation is essential to the survival of firms in a capitalist economy. Baumol argues that innovation has replaced price as the most important factor that lies behind economic growth. He suggests that even though it has been recognized that important innovations stem from small firms, individuals or entrepreneurs, the bulk of innovative activity however is carried out by large oligopolistic firms. Baumol’s argument supports Schumpeter’s distinction between entrepreneurs led and routinized innovation. Schumpeter held that technological competition was the form of competition Continue reading
The Effects of Financial Liberalization
Financial Liberalization refers to deregulation of domestic financial market and liberalization of the capital account that implies removing the ceiling on interest rates. When it is in a liberalized system the competition between the different lending institutions for the deposits will increase interest rates on deposits which will increase the deposits. The availability of credit will increase and this will cause an increase in investment growth. The stages of growth increases activity in the financial markets that makes the introduction and the development of financial institutions. It is argued that financial institutions, by gathering and evaluating information from borrowers, allow the allocation of funds for investment plans to become more efficient and therefore encourage growth and investment. Banks have a role in the process of development. These banks gives the chance for individuals to hold their savings in the form of deposits, so lowing the need to hold them in Continue reading