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    Trade AND Capital Movements

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    Vert Resterio
    The document discusses trade, capital movements, and financial flows between countries and their impact on foreign exchange markets and a country's balance of payments. It explains that trade includes remittances and profit remittances while capital movements include both short and long term investments. A country's balance of payments is determined by foreign currency inflows and outflows. When inflows exceed outflows, there is a surplus, but a deficit occurs when outflows exceed inflows. The central bank intervenes in the foreign exchange market to maintain exchange rate stability by buying or selling foreign currency reserves. However, the Philippines has persistent trade deficits as it imports more than it exports and relies on net capital inflows to achieve balance of payments surpluses.

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    Trade AND Capital Movements

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    Vert Resterio
    34 views16 pages
    The document discusses trade, capital movements, and financial flows between countries and their impact on foreign exchange markets and a country's balance of payments. It explains that trade includes remittances and profit remittances while capital movements include both short and long term investments. A country's balance of payments is determined by foreign currency inflows and outflows. When inflows exceed outflows, there is a surplus, but a deficit occurs when outflows exceed inflows. The central bank intervenes in the foreign exchange market to maintain exchange rate stability by buying or selling foreign currency reserves. However, the Philippines has persistent trade deficits as it imports more than it exports and relies on net capital inflows to achieve balance of payments surpluses.

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    The document discusses trade, capital movements, and financial flows between countries and their impact on foreign exchange markets and a country's balance of payments. It explains that trade includes remittances and profit remittances while capital movements include both short and long term investments. A country's balance of payments is determined by foreign currency inflows and outflows. When inflows exceed outflows, there is a surplus, but a deficit occurs when outflows exceed inflows. The central bank intervenes in the foreign exchange market to maintain exchange rate stability by buying or selling foreign currency reserves. However, the Philippines has persistent trade deficits as it imports more than it exports and relies on net capital inflows to achieve balance of payments surpluses.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    34 views16 pages

    Trade AND Capital Movements

    Uploaded by

    Vert Resterio
    The document discusses trade, capital movements, and financial flows between countries and their impact on foreign exchange markets and a country's balance of payments. It explains that trade includes remittances and profit remittances while capital movements include both short and long term investments. A country's balance of payments is determined by foreign currency inflows and outflows. When inflows exceed outflows, there is a surplus, but a deficit occurs when outflows exceed inflows. The central bank intervenes in the foreign exchange market to maintain exchange rate stability by buying or selling foreign currency reserves. However, the Philippines has persistent trade deficits as it imports more than it exports and relies on net capital inflows to achieve balance of payments surpluses.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 16

    TRADE

    AND
    CAPITAL
    MOVEMENTS
    TRADE AND CAPITAL
    MOVEMENTS
    The external sector shapes the foreign exchange
    market (foreign currency inflow-outflow )through
    its trade,capital movements,and financial
    flows.Trade includes factor payments such as
    remittances from overseas contract workers and
    profit remittances of foreign companies to their
    home countries.Capital movements include both
    short-and long-term foreign investments in the
    country and Filipino investments abroad.Financial
    flow involve international debtsannd loans and
    their repayments.
    Foreign currency (largely in
    dollars) inflow less outflow
    payments define the Balance of
    Payment (BOP) of the
    economy.Foreign currency
    receipts from abroad (inflows)
    eventually sell for pesos while
    foreign curriencies for payments
    to other countries (outflows) are
    bought with pesos.From the
    viewpoint of the economy,a BOP
    surplus means that more foreign
    currencies are being sold for
    pesos than those being bought
    with pesos.Likewise,a BOP deficit
    means that less foreign currencies
    are being solf for pesos than those
    being bought with pesos.
    In Figure 4.10,from Point A,the
    Central Bank buys (demand
    shift D¹ to D² ) the excess
    supply of foreign currency (F¹-F²
    from supply shift S¹ to
    S²).Thus,buying this excess
    supply maintains exchange rate
    E¹ and foreign currencies
    bought and sold
    (supply=demand)F¹ at point
    A.Conversely the Central Baank
    can sell foreign currency
    reserves(supply shift S⁰ to S¹) to
    fill the shortage F¹ to F⁰from
    supply shift S¹ to S⁰)to likewise
    restore equilibrium at point A.
    The economy's
    production is yet
    to go deeper into
    more technology-
    bases stages that
    it imports the
    capital good and
    final goods even
    including
    consumer items
    that it could
    otherwise
    produce (Figure
    4.11).
    (Figure
    4.12)Machineries
    and electronics
    exports are simply
    products from
    their imported
    components
    assembled locally
    by transnational
    corporations.
    As the country exports little but
    imports much,it spends more but
    hardly earns foreign currencies
    (largely dollars).What buy the foreign
    currency maarket are net capital
    inflows (foreign
    investment,loans)that offset trade
    deficits (imports exceed exports)
    resulting in mostly BOP surpluses
    (Figure 4.13)Unfortunately,local
    production can hardly fill in for costly
    imports as handicapped by limited
    scale,access to technology and
    goverment incentives againts the
    backdrop of stiff import
    competition.Thus,local businesses
    engage in low technology production
    and trade that includes cheap and
    shoddy imports of consumer items.
    Imports are becoming
    cheaper relative to local
    goods while exports are
    becoming less
    competitive with less
    peso profit margin for the
    same dollar price.Much
    less are exports
    competitive as our
    neighbors and rivals
    (Malaysia,Thailand,and
    Indonesia)have
    successfully reversed
    their exchange rate
    conditions to make their
    exports more competitive
    (Figure 4.14).
    HERFINDAHL-HIRSCHMAN
    INDEX (HHI)
    • The use of the Herfindahl-Hirschman Index - HHI
    would be useful since it helps the proponent
    identify markets are highly competitive and
    saturated and those markets with high market
    concentration.
    • The HHI number can range from close to zero to
    10,000.The HHI is expressed as:

    • HHI = MS² of Firm 1+MS² of Firm 2+MS² of Firm


    3...+MS² of Firm n.
    • If for example,there was only one firm in an industry,that
    firm would have 100%market share,and the HHI would
    equal 10,000 (100^2),indicating a monopoly.This means
    the market is highly competitive and us characterized by
    the existence of numerous competitors.
    • Result of the HHI would indicate the following:
    • HHI below 100 indicates a highly competitive market.
    • HHI below 1000 indicates an unconcentrated market
    • HHi between 1000 to 1800 indicates moderate market
    concentration.
    • HHI greater than 1800 indicates high market
    concentration.e
    BUSINESS ICONS
    Philippine Business Icon:Manuel
    V. Pangilinan
    • In 2008,he was the 39th richest man in the
    Philippines with a net worth of US$39 million.Now
    68 years old,Pangilinan was not born with the literal
    golden spoon in his mouth,but he worked his way
    to what he is today.Graduating from the Ateneo de
    Manila with a degree in 1968 from th wharton
    School of Finance and Commerce at the University
    of Pennsylvania,as a procter & Gamble fellow.He
    subsequently worked with the PINMA
    group ,Bancom International Limited,American
    Express Bank,and the First Pacific Company.
    • Mr.Paangilinan has been
    recognized in various fields,by
    the TOYM,the Office of the
    President Of the Phillipines,and
    by schools such as the San Beda
    Collage and Xavier University.
    GLOBAL BUSINESS
    ICON:BILL GATES
    • Born in 1955,relatively young entrepreneur Bill
    Gates foundedthe world's largest software
    business,Microsoft,with Paul Allen,and
    subsequently became one of the richest men in
    the world.Gates and Allen wannted to start their
    own company,but Gate's parents wanted him to
    finish ,school and go on to collage where they
    hoped he would work to becomr a lawyer.He
    personally reviewed every line of code thee
    company shipped,often rewriting code when he
    saw it necessary..It was through Mary that Bill
    Gates met the CEO of IBM.
    • In November 1985,Bill Gates and Microsoft
    lauched Windows.Giving back to the
    community set off Gate's philanthropic
    activities.In 1994,Gates and his wife
    established the William H. Gates Foundation
    which was dedicated to supporting
    education,world health,and investment in
    low-income communities,In 2000,the couple
    combined several family foundations to form
    the Bill and Melinda Gates Foundation.They
    started out by making a $28billion
    contribution to set up the foundation.
    Baby kymm A. Hernandez
    Grade 12 F GAS (Ripper)

    Maam JehannaTrestiza
    Teacher

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