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Management Core
MGCR 382
Nicholas Matziorinis

r one 11/2/2011 12:10:00 PM  Ch. 9 Trade and Investment Policies  Types of Government Intervention: Trade barriers (restrict import), trade promotion (supports export)  Most people perceive trade promotion as more positive than trade barriers  But in reality, trade promotion may be more dangerous than trade barriers  Reasons: 1. TB is more visible and easily to be spotted than TP 2. Firms know how to respond to TB Tariff: Obj: protect domestic producers and employees against foreign competitors Imports x tariff = Gov’t revenue Non-tariff barriers Quota: numerical limit: import quota (consumer loss and producer gain) 1. Comparison with tariff 2. Tariff is better than import quota in the perspective of the buyers (the market) 3. But from the perspective of the sellers, import quota is better (be protected under the system) 4. Detailed comparison: 5. Domestic producers prefer quotas a. Regardless of changing market conditions, imports will not exceed needs b. Virtual monopoly 6. Quota is more restrictive than a tariff 7. Tariff: easier to minister  Local purchase requirements  Gov’t procurement policy  Custom valuation: Difference in the percentage of tariff charged on the same product (e.g. Japan car manufacturers’ “CARS” or “TRUCKS”; different definition: the elbow room)  What is the product? (classification) Depends on the tariff. (i.e. PEZ) resolved by the estimation of the value of the different components  Currency control  Promotional strategies: subsidies (how do you define subsidies)  Obvious: cash grants, tax breaks (more complicated), low interest loans, gov’t equity participation  Classic exam question: * Gov’t intervention rationale- Economic Balance of Trade: disequilibrium; infant industry protection, employment protection USA: protectionist (till 1950s)> encouraged other countries to follow her example Problem of infant ind. Protection: WHICH CHILD SHOULD YOU ADOPT? Example of unsuccessful industries: Canada: Ship building, aero-space Tax payers bear huge burden for the above industries… November 16, 2011 th Deadline: Dec 5 2011 (Monday) Before 6pm PPT presentation: good enough for readers to answer an exam question on the book, opinions are not required (but can be inserted), ALL ABOUT THE BOOK (not a critical review), Summary of the book Book review: Outline: Hardcopy and softcopy Do not power phrase Do not use APA Excerpts are not encouraged Quotation mark Foreign Exchange Market  Foreign exchange market: market for converting the currency of one country into that of another  Exchange rates are based on supply and demand  Spot: Delivery between two business days  Hierarchy of international financial centres: London (the premiere centre of FEC in the world, followed by NY)  Seiguorage: profit made by a government by issuing currency, esp. the difference between the face value of coins and their production costs (His definition: the party who’s printing money) the higher the value of your currency, the more powerful seiguorage you are  Participants:  1. Dealers: market makers willing to buy and sell currency at a stated price  Forward contracts: people want to hedge, passed the risk who sold you the forward contract (usually the bank)  Is the bank at risks? NO. it has a lot of customers. The going in and out of the currency. They can make money by covered position.  But they take more risks to be in an uncovered position: SPREAD between bid and ask  BUY from BID RATE and SELL at ASK RATE  Buy rate is always lower than bid rate  COVERED (matched the income and outflow, safe) & UNCOVERED POSITIONS Difference between Speculation and Arbitrage Speculation: Seeks profit from perceived price changes through time V.S. Arbitrage: Seeks profit from price discrepancies across markets Always a price difference in transaction costs MOIVE: Eight and a half week 2. Brokers: Can act as a buyer and sellers, earns commission (e.g. Banks) 3. Firms 4. Central banks: to conduct business on behalf of the government (trivial) Types of transactions: Spot: immediate transactions Forward: Delivery of foreign exchange at some future date (F180>base (FC:US$) Key ideas: transaction dates, guaranteed rate Quotes: 1. Direct quotes: Domestic currency per one unit of foreign currency (DC:FC) 2. Indirect quotes: Foreign currency per one unit of domestic currency (FC:DC) What is a direct quote in country is an indirect quote in another country One is the recipical of others 1 divided by
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