International Trade and Finance SpeechInternational Trade and Finance SpeechThe current state of the U.S. macro economy is made up of a plethora of highly involved processes. I am going to attempt to explain some simple terms and concepts focused on international trade and foreign exchange rates.
Foreign Exchange RatesOne needs to have a base level understanding of what defines an exchange rate. According to Investopedia, a foreign exchange rate is “The price of one countrys currency expressed in another countrys currency. In other words, the rate at which one currency can be exchanged for another.”(Investopedia, 2012) The process by which foreign exchange rates are determined is really not any different than any other market function. The supply and demand for different goods determine what their prices are. In this case, substitute currencies for goods. Let us take the case of one foreign currency to understand how this market works. The dollar-rupee exchange rate will depend on how the demand-supply balance moves. When the demand for dollars in India rises and supply does not rise correspondingly, each dollar will cost more rupees to buy. A foreign exchange rate understanding will help one to comprehend how trade between the US and foreign countries affects the GDP.
In Indian business, foreign exchange rates are determined by a system of rules. When a company is asked for a foreign exchange rate adjustment, the companies only know how to calculate the new rates. For both firms and the private sector, they choose the lower rate. So, a foreign exchange rate can be calculated only to estimate the exchange rate of an individual company in particular country. At first glance this may seem simplistic, especially given the way we now live in a world where most of the world’s companies offer exchange rates, but even then, only a small part of the companies will understand what is being paid for exchange rates. In fact, when you go into a small business, and ask to change one of the staff members to a lower rate, you will never see the change take place. In their minds, the lower rate is not because it is lower than the offer they made the company. To be more specific, the lower rate helps the company to pay the full cost of the change.
India has an effective system for paying its workers’ compensation in the form of labor payments, although many of these are extremely cheap. There are many factors at play, such as the supply of labor, the need to sell the assets or pay a percentage of the assets owned, the need to replace assets such as equipment or equipment that have been destroyed, or the situation of employees and their families. Thus, Indian business does not offer a real exchange rate, but instead requires employees to pay their wages, provided that they choose a lower rate. This lower wage is provided with an inflation rate that allows both firms at all times to negotiate an acceptable level. While one can argue that there is some type of “free market” in which the money we buy from governments is provided for free, there is no such place in any other sphere. This is to say that India is not a free market, but instead an oligarchic one. Indians do have a free market, but it is not the government which is paying for that free market. Instead, the government is charging the profit motive to the private sector which is one of the main driving forces behind our economic system. The government, in turn, is driving the profit motive. (E.g., McKinsey, 2009).
A second point worth discussing is the impact we have on the financial ecosystem in India. As an example, there will be a lot of changes since 2005 when the global financial crisis hit. This changes the way the industry processes capital flows, which impacts its ability to earn and reinvest dividends. When an investor makes investments in a firm, the business will take on a much greater share of capital as a result. The reason for such a shift in capital is that foreign capital will come to the United States where the value on their deposit rate is much higher than in their US bank branch.
Finally, the country also has a growing set of large corporate interests which are often willing to put their money where their mouth is. These interest groups use this money to increase their dominance over large business entities. The business interests then can then use this wealth to build up capital in other countries where they will use the money to generate cash. While the Chinese have used their currency as a mechanism to bring back investment gains here, that Chinese capital does not exist in United States dollars.
Some may think that this is just the beginning. It is also worth noting how a number of American banks are using this system.
The Global South: The Rise and Fall of “Capital One”
In 2008, the US bank Morgan Stanley began to expand into Indian financial markets. After the economic crisis, Morgan Stanley went bankrupt. Morgan Stanley’s main focus now is trying to raise money for the Indian bank’s expansion. The Morgan Stanley expansion includes $100 million in investments in the Indian financial sector, and $90 million in new government-sponsored loans. The Indian government has not made any
In Indian business, foreign exchange rates are determined by a system of rules. When a company is asked for a foreign exchange rate adjustment, the companies only know how to calculate the new rates. For both firms and the private sector, they choose the lower rate. So, a foreign exchange rate can be calculated only to estimate the exchange rate of an individual company in particular country. At first glance this may seem simplistic, especially given the way we now live in a world where most of the world’s companies offer exchange rates, but even then, only a small part of the companies will understand what is being paid for exchange rates. In fact, when you go into a small business, and ask to change one of the staff members to a lower rate, you will never see the change take place. In their minds, the lower rate is not because it is lower than the offer they made the company. To be more specific, the lower rate helps the company to pay the full cost of the change.
India has an effective system for paying its workers’ compensation in the form of labor payments, although many of these are extremely cheap. There are many factors at play, such as the supply of labor, the need to sell the assets or pay a percentage of the assets owned, the need to replace assets such as equipment or equipment that have been destroyed, or the situation of employees and their families. Thus, Indian business does not offer a real exchange rate, but instead requires employees to pay their wages, provided that they choose a lower rate. This lower wage is provided with an inflation rate that allows both firms at all times to negotiate an acceptable level. While one can argue that there is some type of “free market” in which the money we buy from governments is provided for free, there is no such place in any other sphere. This is to say that India is not a free market, but instead an oligarchic one. Indians do have a free market, but it is not the government which is paying for that free market. Instead, the government is charging the profit motive to the private sector which is one of the main driving forces behind our economic system. The government, in turn, is driving the profit motive. (E.g., McKinsey, 2009).
A second point worth discussing is the impact we have on the financial ecosystem in India. As an example, there will be a lot of changes since 2005 when the global financial crisis hit. This changes the way the industry processes capital flows, which impacts its ability to earn and reinvest dividends. When an investor makes investments in a firm, the business will take on a much greater share of capital as a result. The reason for such a shift in capital is that foreign capital will come to the United States where the value on their deposit rate is much higher than in their US bank branch.
Finally, the country also has a growing set of large corporate interests which are often willing to put their money where their mouth is. These interest groups use this money to increase their dominance over large business entities. The business interests then can then use this wealth to build up capital in other countries where they will use the money to generate cash. While the Chinese have used their currency as a mechanism to bring back investment gains here, that Chinese capital does not exist in United States dollars.
Some may think that this is just the beginning. It is also worth noting how a number of American banks are using this system.
The Global South: The Rise and Fall of “Capital One”
In 2008, the US bank Morgan Stanley began to expand into Indian financial markets. After the economic crisis, Morgan Stanley went bankrupt. Morgan Stanley’s main focus now is trying to raise money for the Indian bank’s expansion. The Morgan Stanley expansion includes $100 million in investments in the Indian financial sector, and $90 million in new government-sponsored loans. The Indian government has not made any
International Trade and GDPFirst of all, Gross Domestic Product (GDP) is the representation of the total dollar value of all goods and services produced over a specific time period (Investopedia, 2012) This is the actual “size” of the economy.
The easiest way to describe the effects of international trade to GDP is through example. Let us use trade between the U.S. and Mexico. “U.S. demand for Mexican imports increases. This increases U.S. demand for pesos. U.S. demand for pesos raised the price of the peso in dollars. When Americans purchase