Global finance
Gone are the days when travelers and sailors roamed across the world and returned home to describe cultures and wealth of other nations.Marco Polo, Christopher Columbus, and many others must have spent their time trying to explain the novelties they encountered during their travels and voyages.In those days, few modes of transport were available and such stories made the traveler a welcome guest.There were those old ships with sails that still look good as paintings hung on many a corporate wall.On land, goods were loaded on carts driven by animals such as horses and bullocks.Camels, mules and donkeys were the other valued animals for transporting merchandise.
Advent of railways and motor vehicles followed by aircrafts and large ships improved the trading relations across the nations.Such trade is essential because different countries have different climates, and therefore, different types of fruits, animals and vegetation.In addition, god has not distributed all minerals equally across the globe.By exchanging the merchandise, all the countries could get what they needed.The west was more advanced in technologies, and the eastern part of the world was full of spices, silks, pearls, intricate gold ornaments, and diamonds.
Telecommunications proved to be a major constraint for rapid increase in trade between two countries in those days.Industrialization gave eastern countries an edge because of their population.Labor in these countries is cheaper and therefore, the cost of production of materials such as textiles, footwear and garments became the mainstay.Many industries from west relocated to eastern countries.And the trade flourished.The host countries soon realized that there was something in this for them too.Therefore, there were different tax structures, initially to lure the industries from west, and later to ensure regular revenues.This improved the economies of the eastern nations as well, which had become poor during the reigns of other nations like England, France, and Portugal.
In these days of Internet it is rather hard to imagine the constraints of that era.Internet has completely reformed the trade across the globe.Apart from software development, Internet also facilitates export and import of services such as medical transcription, indexing of documents, and legal transcription.
To understand the concept of International trade, imagine a country like Japan.Japan sells cars to Australia.The terms used would be Japan exports cars, and Australia imports cars.Therefore, at the end of the day, when a country balances its exports and imports account against all the other nations in the world, it may be left either with trade deficit or trade surplus.This balance of trade must be differentiated from balance of payments.Balance of payments is net of all receipts and payments to different countries, including payments for any financial transactions, or investments.
Balance of payments may, at times, leave surplus in the hands of a country.In International trades, there is always a time gap for payment.Pension funds and trusts such as real estate investment trusts, often collect funds for investing in foreign countries.Therefore, these bodies invest in shares, stocks, bonds, currencies, and real estate of other countries.Effectively, this is only temporary investment.
Since international economies have become highly intertwined, investment of such foreign exchange in other countries is feasible.For investing in and trading with another country, it is necessary to know financial data about the other country such as population statistics, unemployment rates, real estate scenario, gross domestic product trends, consumer price index trends, wholesale price index trends, commodity index trends, commodity prices in the country, inflation trends, central bank interest rates, deposit rates, lending rates, call money rates, inter-bank interest rates, government bond yields, corporate bond yields, sector-wise stock market trends, and specific stocks capitalization, trade volumes, price by earnings ratio and dividend yield.Apart from this global financial information, the investors must also learn about foreign exchange and investment policies as well as taxation policies, and export and import duties, customs duties, excise levies, etc.There are many websites on the Internet that offer this information.
Apart from individuals, and corporate bodies, governments also import or export commodities or merchandise.This is done to control the prices of commodities or products such as sugar, cement, or onion within the country.If sugarcane and onions crops are bad in any year, the prices shoot up due to demand and supply gap.To prevent such erratic price movement governments import the commodities from other countries that are offering such produce.Similarly, sudden spurt in construction activity can lead to spikes in cement and steel prices within the country.
Need to control prices of commodities within the country prompts governments to form trade policies and enter into trade agreements.With trade policies and import duties, government ensures that imports of commodities do not strangle the local industries.If this happens, there will be considerable unemployment, leading to political instability in the country.Governments may go so far as offering rebates to local industries to make the prices of their produce competitive with that being offered by other nations.This is a type of industrial protectionism, which only results in short term gains.
At times foreign relations and policies of a country influence these trade policies.Therefore, a country at war with another may opt to import a commodity from a third nation, even if the same commodity is being exported for lesser price by the adversary nation.Such a situation gives other neutral nations an opportunity to import the commodity at a cheaper rate from adversary nation and export it at a higher rate to the rival.
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