T4 4.1 - 4.5.4 Financial markets

T4 4.1 Financial markets

4.1.1 GLOBALISATION

4.1.1 GLOBALISATION

What is globalisation

The increased integration and inter dependence of world economies

What are 3 ways this can be seen through

Rising number of global brands

Increasing connectivity of people and business

Expansion of financial capital flows between countries

Give 3 characteristics of globalisation

Expansion of free trade

Expansion of FDI by TNC’s

High levels of labour migration within/between countries

Who are the East Asian Tigers

Newly industrialised countries who began to rise through export oriented industrialisation (70s and 80s)

What did the EATs do to make themselves off shoring hubs for FDI

They invested in their human capital which allowed them to diversify away from low value goods to higher value goods production

What percentage of global economic growth did the BRICs make up

28% (2000 - 2007)

What was Chinese economy market share of global economy in 1980 vs now

2% vs 18%

What is a TNC

A firm that is registered or operates in one or more countries

Where are many TNCs coming from nowadays compared to before

Newly industrialised economies compared to western countries previously

What do many people see de-industrialisation (levelling up) as responsible for

The rise in populism and right leaning governments

Why might a TNC want to invest abroad

Abundant raw materials

Cheap labour

Quality of labour

Low regulation

Saturated markets domestically

Tax avoidance

What is offshoring

Setting up operations or production in another country

What is outsourcing

The contracting out of a production/supply chain to a third party in another country

What is a global value chain

Refers to the interconnected network of activities involved in the production and delivery of goods and services that are performed by multiple firms in different countries

Where are the different stages of production such as design, research and development performed

In different countries by different firms, each adding their own value to the final product or service

Pros of TNC/MNC investment

Create jobs, stimulating growth

Size and scale of operation enables lower unit costs

Profits of TNCs can be used for R&D

TNCs bring new technology to LDCs which they can copy to help develop

Cons of TNC investment

TNCs in LDCs have strong bargaining power which allows them to drive down wages

MNCs have monopoly power

Lots of pollution (negative externalities)

What is a joint venture

When two or more businesses come together to pursue a common project

With a joint venture, the businesses remain separate in legal terms

Why are joint ventures becoming more popular

Because firms want to benefit from collaborative work or access a market (ie big company teaming up with local company in china)

What are some benefits of joint ventures

Allows sharing of costs with TNCs

Local businesses could gain access to resources including tech, human capital and finance

Risks of R&D are shared

Positive externalities

What are some Causes of the rise in globalisation

Advance in transport and containerasation

Role of World Trade Organisations (WTO) such as EU in reducing trade barriers

Improved technology (easier to communicate)

Improved mobility of capital

Growth of multinational companies

Further causes of rise in globalisation

Opening of formerly closed economies

Increased mobility of labour

Global trade cycles

Firms exploiting economies of scale to gain increased specialisation and reduced unit costs

Consumer welfare is an umbrella term that covers what 3 things:

Price

Choice

Quality

What are some benefits of globalisation

Higher growth rates (FDI injections + export led multipliers)

Increased allocative efficiency via using comparative advantage

Jobs created

Rise in consumer welfare

Attracting FDI

Fall in wage costs (increased migrant workers)

Reduction in absolute poverty

Is further up the supply chain is closer to product or raw materials

Closer to the product

Is further up the supply chain is closer to product or raw materials

Closer to the product

Define allocative efficiency

When price equals marginal cost

What is a monopsony

Monopsonies have buying power and can force costs to be lower

(ie NHS)

What is a monopoly

They have selling power (they own majority shares of market so can charge whatever price they want)

What does dynamic efficiency encompass

Product and process innovation

What is the money supply

The entire stock of currency and other liquid investments circulating in a countries economy

What are the 4 functions of money

Medium of exchange

Standard of differed payment

Measure of value

Store of value

What is narrow money

Measure of the value of the notes and coins in circulation that are easily convertible into cash

What is broad money

The most inclusive definition of MS. The total money held by households and businesses in an economy

What are factors affecting the supply of money

Open market operations (essentially the same as quantitative easing

Factors affecting the demand for money

Interest rates on loans

Rate of anticipated inflation (purchases brought forwards)

What is the liquidity coverage ration (LCR)

To mitigate liquidity risk deposit takers are required to hold sufficient regulatory liquidity

The LCR requires banks to hold sufficient cash to cover net cash outflows during a 30 day liquidity stress scenario

What is a financial market

A financial market is any exchange that facilitates the trading of financial instruments, such as stocks, bonds, foreign exchange or primary commodities such as oil and gas