International Financial Management PPT Chap 1

INTERNATIONAL FLOW OF FUNDS
PROFESSOR DR. MD. AMINUL ISLAM

FA C U LT Y O F A P P L I E D A N D H U M A N
SCIENCES
U N I V E R S I T I M A L AY S I A P E R L I S
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After this session participants will be able to:
 Explain the key components of the balance of payment
 Explain how international trade flows are influenced by
economic factors and other factors
 Explain how international capital flows are influenced by
country characteristics
Introduction
 Global tendencies and movements in the world are great

challenges and also important opportunities for individual
economies.
 Globalization of the markets and the internationalization of
the production present the most significant features of the
world economic development during the last decades.
 Globalization impacts have changed the rules of the world
competition.
Introduction
 Global strategy is based on the search of the balance between

the local adaptation and global standardization.
 Growth of the international trade has been influenced by
many factors followed-up on globalization, such as the
development of the technology, governments decisions,
institutions activities, consumers behaviour, increasing
competition, new trade agreements, etc.
Balance of Trade
 Balance of trade is defined as a nation's net exports, or its exports minus

imports.
 When exports exceed imports, the nation has a trade surplus, and when
imports exceed exports, the nation has a trade deficit.
 International trade is largely affected by the demand for a nation's

goods and services.
Exporting is defined as the sale of products and services in foreign

countries that are sourced or made in the home country.
Importing refers to buying goods and services from foreign sources and
bringing them back into the home country. Importing is also known as
global sourcing.
Balance of Payments
BOP is the Summary of transactions between domestic and

foreign residents for a specific country over a specified period of
time.
Current Account:
Summary of flow of funds due to purchases of goods or services
or the provision of income on financial assets.
 Payments for merchandise and services

 Factor income payments
 Transfer payments
Balance of Payments
Capital and Financial Accounts
Capital Account:
Summary of flow of funds resulting from the sale of assets
between one specified country and all other countries over a
specified period of time.
 Direct foreign investment

 Portfolio investment
 Other capital investment
FOREIGN TRADE STATISTICS OF BANGLADESH 2019-20
FOREIGN TRADE STATISTICS OF BANGLADESH 2018-19
Over 71% Bangladesh's exports limited to only 10
countries (As of 2019)
Bangladesh’s Trade with India
Bangladesh’s Trade with India
Exports and Imports With China)
Exports and Imports (USA)
International Trade Flows (USA)
1. Distribution of U.S. Exports and Imports: Canada, China,

Mexico, and Japan are the key exporters to the United States.
2. U.S. Balance-of-Trade Trend: value has grown substantially over

time.
3. Impact of Huge Balance-of-Trade Deficit: could lead to higher

U.S. unemployment but increases competition leading to more
efficient production.
Events That Increased International Trade
 Removal of the Berlin Wall

 Single European Act of 1987
 North American Free Trade Agreement (NAFTA)
 General Agreement on Tariffs and Trade (GATT)
 Inception of the Euro
 Expansion of the European Union
 Other Trade Agreements
 Containerisation. The costs of ocean shipping have come down, due to
containerisation, bulk shipping, and other efficiencies
 Technological change
 Economies of scale
 Differences in tax systems
 Less protectionism
 Growth Strategies of Transnational and Multinational Companies.
Trade Frictions - Examples
1. Environmental restrictions
2. Labor laws
3. Bribes
4. Government subsidies
5. Tax breaks
Trade Policies
1. Using the exchange rate as a policy

2. Outsourcing
3. Managerial decisions about outsourcing
4. Using trade policies for security reasons
5. Using trade policies for political reasons
Factors Affecting International Trade Flows
1. Inflation: current account decreases if inflation increases

relative to trade partners.
2. National Income: current account decreases if national
income increases relative to other countries.
3. Government Policies
a. Subsidies for exporters
b. Restrictions on imports
c. Lack of restriction on piracy
a. Exchange Rates: current account decreases if currency
appreciates relative to other currencies
Limitations of a Weak Home Currency Solution
1. Counterpricing by competitors
2. Impact of other weak currencies
3. Prearranged international transactions
4. Intracompany trade
Distribution of Global DFI across Regions in 2007-2008
Factors Affecting International Portfolio Investment
1. Tax rates on Interest or Dividends

2. Interest Rates
3. Exchange Rates
Agencies that Facilitate International Flows
1. International Monetary Fund (IMF)

2. World Bank
3. World Trade Organization (WTO)
4. International Financial Corporation (IFC)
5. International Development Association (IDA)
6. Bank for International Settlements (BIS)
7. Organization for Economic Cooperation and Development
(OECD)
8. Regional development agencies
Knowledge Sincerity Excellence UniMAP
Factors Affecting FDI
1. Changes in Restrictions
2. Privatization
3. Size of the Economy and potential for Growth
4. Tax Rates
5. Exchange Rates
6. Political Stability and Copyrights
7. Size of the Total Local Market
8. Access to Free Trade Areas
9. Infrastructure and access to raw materials
10. Communication and transport links.
11. Labor Skills
12. Wage Rates

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INTERNATIONAL FLOW OF FUNDS

PROFESSOR DR. MD. AMINUL ISLAM

 Global tendencies and movements in the world are great

 Global strategy is based on the search of the balance between

 Balance of trade is defined as a nation's net exports, or its exports minus

 International trade is largely affected by the demand for a nation's

Exporting is defined as the sale of products and services in foreign

BOP is the Summary of transactions between domestic and

 Payments for merchandise and services

 Direct foreign investment

1. Distribution of U.S. Exports and Imports: Canada, China,

2. U.S. Balance-of-Trade Trend: value has grown substantially over

3. Impact of Huge Balance-of-Trade Deficit: could lead to higher

 Removal of the Berlin Wall

1. Using the exchange rate as a policy

1. Inflation: current account decreases if inflation increases

1. Tax rates on Interest or Dividends

1. International Monetary Fund (IMF)

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