Example

C ountry C has the absolute advantage.

• Country A can produce 1000 parts per hour with 200 workers.

• Country B can produce 2500 parts per hour with 200 workers.

• Country C can produce 10000 parts per hour with 200 workers.

Considering that labor and material costs are all equivalent, Country C has the absolute advantage over both Country B and Country A because it can produce the most parts per hour at the same cost as other nations. Country B has an absolute advantage over Country A because it can produce more parts per hour with the same number of employees. Country A has no absolute advantage because it can't produce more goods than either Country B or Country C given the same input.

Questions to UNIT 20

1. W hat is law of comparative advantage?

2. What are the principals of absolute advantage?

3. When was the theory of absolute advantage discovered? Who was the author?

4. Give the main points of the origin of the theory of absolute advantage?

UNIT 21 Balance of payments

Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The BOP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.

When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter-balanced in other ways – such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries.

While the overall BOP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account, the capital account excluding the central bank's reserve account, or the sum of the two. Imbalances in the latter sum can result in surplus countries accumulating wealth, while deficit nations become increasingly indebted. The term "balance of payments" often refers to this sum: a country's balance of payments is said to be in surplus (equivalently, the balance of payments is positive) by a certain amount if sources of funds (such as export goods sold and bonds sold) exceed uses of funds (such as paying for imported goods and paying for foreign bonds purchased) by that amount. There is said to be a balance of payments deficit (the balance of payments is said to be negative) if the former are less than the latter.

Q uestions to UNIT 21

1. What are balance of payments accounts?

2. What are components of balance of payments?

3. What do balance payments transactions include?

UNIT 22 Banking system

There are several types of banks in the world, and each has a specific role and function – as well as a domain – in which they operate. In broad strokes, banks may be divided into several groups on the basis of their activities and these include investment banks, retail, private, business, online bank and also corporate banks. Many of the larger banks have multiple divisions covering some or all of these categories.

Retail banks deal directly with consumers and small business owners. They focus on mass market products such as current and savings accounts, mortgages and other loans, and credit cards. By contrast, private banks normally provide wealth management services to high net worth families and individuals.

Business banks provide services to businesses and other organizations that are medium sized, whereas the clients of corporate banks are usually major business entities.

Lastly, investment banks provide services related to financial markets, such as mergers and acquisitions.

Another way in which banks may be categorized is on the basis of their ownership. They might either be privately held or publicly owned banks.

Privately owned banks are motivated by profit in their business operations. Publicly owned banks are held by the state governments of the individual countries and they serve as a nation’s centralized bank, as well as an economic backbone for that particular country. They are also known as central banks.

Publicly owned banks, which are controlled by the government, have numerous responsibilities pertaining to the banking sector of the country, such as administering various activities for the commercial banks of that country. They also determine the rates of interest offered by banks doing business in that country, as well as playing a major role in maintaining liquidity in the banking sector.

There are several types of retail banks. These include the offshore, community and savings banks, as well as the community development banks, building societies, postal savings banks, ethical banks and Islamic banks.

Offshore banks operate in areas of reduced taxes, as compared to the country in which the investor lives in. This is why most offshore banks are private banks.

Community banks are monetary organizations operated on a local basis, while community development banks cater to the populations, or markets, that have typically not been served properly.

Postal savings banks are basically savings banks that operate in conjunction with the national postal systems of that country.

Building societies where traditionally mutually owned by their customers. They provide a full range of retail banking services, but with a particular focus on mortgages.

Ethical banks do their business based on their own code of conduct. They only accept investments that they perceive to be useful from a social and environmental point of view. The Islamic Banks perform their business operations as per the Sharia law, the Islamic code of law. In particular, this means that they operate sans interest.

Questions to UNIT 22

UNIT 23 STOCK EXCHAGE

A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.

To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.

T he initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market.

A stock exchange is the most important component of a stock market. Supply and demand in stock markets is driven by various factors that, as in all free markets, affect the price of stocks.

There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.

History

The idea of debt dates back to the ancient world. In the Roman Republic there were organizations of contractors or leaseholders who performed temple-building and other services for the government.

In 1171, the authorities of the Republic of Venice drew a forced loan from the citizenry. Such debt was paid 5 percent interest per year and had an indefinite maturity date.

The forefront of commercial innovation eventually shifted from Italy to northern Europe. The Hanseatic League, an alliance of mercantile cities operated counting houses to expedite trade.

London's first stockbrokers were barred from the old commercial center known as the Royal Exchange, reportedly because of their rude manners. The new trade was conducted from coffee houses along Exchange Alley. By 1698, a broker named John Castaing, operating out of Jonathan's Coffee House, was posting regular lists of stock and commodity prices. Those lists mark the beginning of the London Stock Exchange.

Role of stock exchanges

UNIT 22 PROPERTY RIGHTS

Bundle of rights an entity has in a thing owned. These are among the most basic rights in a free society. No right to property, however, is absolute in any society. Laws created by governments in regards to how individuals can control, benefit from and transfer property. Economic theory contends (доказывает) that government enforcement (правоприменение) of strong property rights is a determinant regarding the level of economic success seen in the area. Individuals will create new forms of property to generate wealth, only when they are assured that their rights to their property will protect them against unjust and/or unlawful actions by other parties.  For example, if property rights were not established to prevent a government from freely expropriating foreign created business ventures without proper compensation, then it is unlikely that any foreign company would risk going into that country for risk of losing their entire operation. While property rights regarding physical property has been well established. Many justice systems must now contend with property that solely exists in a digital or virtual setting. For example, who ultimately owns a house built in a game on the Internet, the user that created the house with his character? Or the game development company that created the game who also owns the server in which the house resides in?