EXCHANGE AND INTERNATIONAL

ECONOMICS

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BARTER

BARTER

A method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money.

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MERCANTILISM

Economic nationalism for the purpose of building a wealthy and powerful state.

It was believed that national strength could be maximized by limiting imports via tariffs and maximizing exports.

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ADAM SMITH

coined the term “mercantile system” to describe the system of political economy that sought to enrich the country by restraining imports and encouraging exports. 

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MONEY

An article which may be used as a universal passport to provide everything except

HAPPINESS.

Functions of Money

Means of payment for buying things and for paying debts.

Standard value or a unit of account serves as a common denominator in which the value of all goods and services are expressed.

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Money as a means of storing wealth.

Money facilitated trade and commerce transactions.

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LAWS OF MONEY

GRESHAM’S LAW

“Poor or bad money drives the good or better money out of circulation.”

-- Sir Thomas Gresham

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Quantity TheorY of Money

• States that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold.

• The calculation behind the quantity theory of money is based upon Fisher Equation:

MV=PTWhere: M - represents the money supply.V - represents the velocity of money.P - represents the average price level.T - represents the volume of transactions in the economy.

BANKS

The word “bank” was derived from Italian word banco which means “bench or desk”, used during the Renaissance era by Florentine bankers, who used to make their transactions above a desk or bench covered by a green tablecloth.

Business establishment that safeguards people’s money and uses it to make loans and investments.

An establishment authorized by a government to provide financial services to its customers.

CLASSIFICATION OF BANKS

COMMERCIAL BANKS It is a bank that lends money and provides transactional, savings, and money market accounts that accepts time deposits.

THRIFT BANKS

Include savings and mortgage banks, savings and loan associations and private development banks.

RURAL BANKS

Commonly referred to as the regional unit bank.

Provide adequate credit facilities to farmers and merchants or to cooperatives and, in general, to the people of the rural communities of which the rural bank operates in.

FUNCTIONS OF BANKS

1. Banking and Exchange 2. Furnishing of Currency by Banks3. Deposit Functions of Banks 4. Lending and Discount Functions 5. Remittance and Collection Function 6. Fiduciary Function

CENTRAL BANK

The entity responsible for

overseeing the monetary system for a nation.

OBJECTIVES OF CENTRAL BANK

Maintain internal and external monetary stability in the Philippines, and preserve the international value of peso.

To foster monetary, credit, and exchange conditions conducive to a balances and sustainable growth of the economy.

Bangko Sentral ng Pilipinas

(Central bank of the Philippines)

Bank of the banks in Philippines that provides the regulations and procedures for its member banks.

WORLD BANK

Makes loans throughout the developing world to finance specific capital projects.

The World Bank's official goal is the reduction of poverty.

THE INTERNATIONAL MONETARY FUND

Is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Objectives of IMF

1. To promote international monetary cooperation    through a permanent institution.

2. To facilitate the expansion and balanced growth of     international trade.

3. To promote exchange stability.

4. To assist in the organization of a system of payment.

5. To give confidence to member countries

6. To shorten the duration and reduce the degree of disequilibrium in the International Balance of Payments.

CREDIT

It is the power to obtain goods at present in exchange for a promise to pay in the future.

4 C’s of Credit

1.Character2.Capacity to pay3.Capital4.Collateral or the security

in case that debt can not be paid.

Advantage of Credit

1.It facilitates exchange.2.It increases the volume of

production.3.It eliminates the risk

involved in making payments to distant places.

4.It economizes the use of coins and paper money.

5.It eliminates the danger of being robbed

6.It makes possible the accumulation of capital to finance an enterprise

Disadvantages of Credit

1. It facilitates the overexpansion of business activity.

2. A too liberal credit encourages extravagance.

3. It increases business risk.4. Easy borrowing of the

government often leads to wasteful use of public funds.

Monetary Policy

Refers to the country’s central bank role to determine the amount of money and the cost of credit interest rate.

Theory of comparative advantage

States that it is better to specialize in those activities in which the advantage over others is greatest or in which the disadvantage compared to others is the smallest.

FOREIGN EXCHANGE

The conversion of one country's currency into that of another.

BALANCE OF TRADE(BOT)

The difference between a country's imports and its exports.

It is the largest component of a country's balance of payments.

IMPORT -Goods and services of foreign countries that one country purchases, or the total value of such expenditures.

EXPORT-One country’s goods and services that are sold to other countries, or the total value of such sales.

Balance of payments(BOP)

Systematic record of all the economic transaction of the country on the receipts from and payments to foreign countries.

The transactions in Balance of Payments are generally classified into three categories:

1. Transactions in goods and services.

2. Transfer payments3. Transactions in capital and

monetary gold.

SURPLUS-It is when receipts are more than payments.

DEFICIT-It is when disbursements exceed receipts.

INFLATION

This is the rate of upward movement in the general price level for an aggregate of goods and services.

variations on inflation

Deflation is when the general level of prices is falling. This is the opposite of inflation.

Hyperinflation is unusually rapid inflation. In extreme cases, this can lead to the breakdown of a nation's monetary system.

Stagflation is the combination of high unemployment and economic stagnation with inflation.

DEMAND PULL INFLATION

Summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase.

Graph that shows Demand Pull Inflation:

COST PUSH OR SUPPLY SIDE INFLATION

A phenomenon in which the general price levels rise due to increases in the cost of wages and raw materials.

Graph that shows Cost Push or Supply Side Inflation:

Inflation RateThe percentage by which

prices of goods and services rise beyond their average levels.

Inflation Rate = (Po- P-1)* 100 / P-1

Where:

Po = the present average price

P-1 = the price that existed last year.

trade

“Primary instrument of development.”

The transfer of ownership of goods and services from one person or entity to another by getting something in exchange from the buyer.

Free trade

Occurs when the government has placed to tariffs on imports and no restrictions on exports

Three ways in which free trade can be achieved

1. Unilaterally or when one country reduces its trade barriers regardless of the practices of the other country.

2. Bilaterally or when two countries agree to remove tariff barriers between them.

3. Multilaterally or when many countries agree to lower tariffs at the same time.

REASONS FOR INTERFERING WITH FREE

TRADE1. Mercantilism2. National Defense3. Infant Industries4. Protecting the wages of labor5. Protecting the jobs of labor

Importance of Free Trade

1. It would be necessary to find substitutes for some product we enjoy.

2. More money would have to be spent to produce things that could be imported at less cost.

3. The economy of other countries that depend on our trade would be hurt.

Trade barriers

1. Tariffs – excise taxes on imported goods.

2. Import Quotas – Specify the maximum amounts of commodities which may be imported in any period.

3. Nontariff Barriers (NTBs) – refer to licensing requirements, unreasonable standards pertaining to product quality or safety, or unnecessary bureaucratic red tape customs procedure.

4. Voluntary Export Restrictions (VERs) - trade barriers by which foreign firms voluntarily limit the amount of their exports to a particular country.

SUBMITTED TO:

Prof. Tessie Sagadraca

SUBJECT: Principles of Economics 

 SUBMITTED BY:

Almoite, Mary Chris M.Cabiso, Rechilla Jean B.

Maneclang, Alexander Jr.Valdez, Daniel

IV-CCNAUniversity of Makati