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= Jubo-jubo's wikireader into economics =

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* '''''[[w:Economics|Economics]]''' is the [[w:Social sciences|social science]] that analyzes the [[w:Production theory basics|production]], [[w:Distribution (economics)|distribution]], and [[w:Consumption (economics)|consumption]] of [[w:Good (economics and accounting)|goods]] and [[w:Service (economics)|services]].'' ( Wikipedia )

* '''''[[w:Business economics|Business economics]]''' is a field in [[w:applied economics|applied economics]] which uses [[w:economic theory|economic theory]] and quantitative methods to analyze [[w:Business|business enterprises]] and the factors contributing to the diversity of organizational structures and the relationships of firms with labour, [[w:Capital (economics)|capital]] and product markets.'' ( Wikipedia )

::* '''''[[w:fi:Taloustiede|fi:Taloustiede]]''' on [[w:fi:yhteiskuntatiede|yhteiskuntatiede]], joka tutkii lähinnä [[w:fi:Talous|taloudellisia]] päätöksiä tekevien toimijoiden kannustimia ja käyttäytymistä, sekä niiden perusoletuksista johdettuilla malleilla ja teorioilla erilaisia taloudellisia ilmiöitä. Tavallisia tutkimuksen kohteita ovat [[w:fi:Hyödyke|hyödykkeiden]] kulutus, tuotanto ja allokointi, [[w:fi:Markkinat (taloustiede)|markkinoiden]] toiminta sekä aina kokonaistalouteen liittyvät kysymykset kuten [[w:fi:talouskasvu|talouskasvu]] ja [[w:fi:inflaatio|inflaatio]].'' Suomeksi taloustiedettä sanotaan myös [[w:fi:Kansantaloustiede|kansantaloustieteeksi]] erotuksena [[w:fi:Liiketaloustiede|liiketaloustieteestä]]. ( Suomen kielinen Wikipedia )
 
* '''[[w:Outline of economics]]''' is a good introductory text to economics if you don't know what it comprises and what kind of issues it deals with.
{{Economic systems sidebar}}

'''Economics''' is divided to the study of [[w:microeconomics]] an [[w:macroeconomics]] with various sub-fields.

::'''[[w:Microeconomics]]''' ( [[w:fi:Mikrotaloustiede]] ) (from Greek prefix micro- "μικρό" meaning "small" + "economics"- "οικονομια") is a branch of economics that studies the behavior of '''''individual households and firms''''' in making decisions on the allocation of limited resources. ( Wikipedia )
::'''[[w:Macroeconmics]]''' ( [[w:fi:Makrotaloustiede]] ) (from Greek prefix "makros-" meaning "large" + "economics") is a branch of economics dealing with the performance, structure, behavior, and decision-making of an '''''economy as a whole''''', rather than individual markets. ( Wikipedia )

= Year 1=
= Business Economics =

== Week 43 - Markets, scarcity and decisions ==

* In '''[[w:market]]s''' ( [[w:fi:Markkinat (taloustiede)]] ) '''[[w:demand]]''' and '''[[w:supply (economics)|supply]]''' control the prices and goods that are produced. This is the model of '''[[w:Supply and demand]]''' ( [[w:fi:Kysyntä ja tarjonta]] ) .
* '''[[w:Scarcity]]''' ( [[w:fi:Niukkuus]] )  of resources affects production decisions. 
* All production decisions have an '''[[w:opportunity cost]]''' ( [[w:fi:Vaihtoehtoiskustannus]] ).
*'''[[w:Market equilibrium]]''' ( [[w:fi:Taloudellinen tasapaino]] )  refers to a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. ( Wikipedia ) Market equilibrium is where the [[w:demand curve]] and the supply curve intersect.
::: The '''[[w:demand curve]]''' is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price. ( Wikipedia ). 

* The '''[[w:law of demand]]''' is an economic law, which states that consumers buy more of a good when its price is lower and less when its price is higher ('''[[w:ceteris paribus]]'''). ( Wikipedia )
::* '''[[w:Substitution effect]]''' and '''[[w:income effect]]''' explain the law of demand

* '''[[w:Normal good]]s''' are any goods for which demand increases when income increases and falls when income decreases but price remains constant, i.e. with a positive [[w:income elasticity of demand]]. ( Wikipedia ) vs. an '''[[w:inferior good]]''' is a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed. ( Wikipedia )

== Week 44 - Economies of scale, utility, elasticities ==
'''[[w:Economies of scale]]''' In microeconomics, economies of scale are the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. 
'''[[w:Diseconomies of scale]]''' are the forces that cause larger firms and governments to produce goods and services at increased per-unit costs. The concept is the opposite of economies of scale. ( Wikipedia )

In economics, '''[[w:returns to scale]]''' ( [[w:fi:Skaalaetu]] ) and economies of scale are related terms that describe what happens as the scale of production increases in the long run, when all input levels including physical capital usage are variable (chosen by the firm).

'''[[w:Utility]]'''  ( [[w:fi:Hyöty]] ) to [[w:consumer]] is a representation of preferences over some set of goods and services. ( Wikipedia )
::::'''[[w:Marginal utility]]''' ( [[w:fi:Rajahyöty]] ) - In economics, the marginal utility of a good or service is the gain (or loss) from an increase (or decrease) in the consumption of that good or service. ( Wikipedia )

'''[[w:Elasticity (economics)]]''' ( [[w:fi:Jousto]] ) is the measurement of how changing one economic variable affects others. ( Wikipedia )
::::'''[[w:Price elasticity of demand]]''' ( [[w:fi:Kysynnän hintajousto]] )  (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. ( Wikipedia )
::::'''[[w:Price elasticity of supply]]''' (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price. ( Wikipedia )
::::'''[[w:Income elasticity of demand]]''' ( [[w:fi:Kysynnän tulojousto]] )  measures the responsiveness of the demand for a good to a change in the income of the people demanding the good, ceteris paribus.
::::'''[[w:Cross elasticity of demand]]''' or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. ( Wikipedia )
:::::: There are more elasticies in the [[w:Elasticity (economics)]]

== Week 45 - Market structures, competitions and costs  ==

'''[[w:Total cost]]''' == '''[[w:fixed cost]]''' + '''[[w:variable cost]]s'''

A '''[[w:production function]]'''  ( [[w:fi:Tuotantofunktio]] ) is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs. ( Wikipedia )

'''[[w:Marginal product of labor]]''' also known as MPL is the change in output that results from employing an added unit of labor.( Wikipedia )

'''[[w:Marginal cost]]'''  ( [[w:fi:Rajakustannus]] ) is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good. ( Wikipedia )

'''[[w:Average cost]]''' or '''unit cost''' is equal to total cost divided by the number of goods produced (the output quantity, Q). It is also equal to the sum of average variable costs (total variable costs divided by Q) plus average fixed costs (total fixed costs divided by Q). ( Wikipedia )

'''[[w:Market structure]]''' is the number of [[firm]]s producing identical [[w:Product_(business)|products]] which are homogeneous. The types of market structures include the following:
:* '''[[w:Monopolistic competition]]'''  ( [[w:fi:Monopolistinen kilpailu]] ) , also called competitive market, where there is a large number of firms, each having a small proportion of the market share and slightly differentiated products.  
:* '''[[w:Oligopoly]]''' ( [[w:fi:Oligopoli]] ) , in which a market is dominated by a small number of firms that together control the majority of the market share. 
:** [[w:Duopoly]], a special case of an oligopoly with two firms. 
:* [[w:Monopsony]], when there is only one buyer in a market.
:* [[w:Oligopsony]], a market where many sellers can be present but meet only a few buyers. 
:* '''[[w:Monopoly]]''' ( [[w:fi:Monopoli]] ) , where there is only one provider of a product or service and '''[[w:Barriers to entry]]''' prohibit entering the market for other businesses. 
:** [[w:Natural monopoly]], a monopoly in which [[w:economies of scale]] cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms.
:* '''[[w:Perfect competition]]''', a theoretical market structure that features no [[w:barriers to entry]], an unlimited number of producers and consumers, and a perfectly elastic [[w:demand curve]].  

:::All definitions of market structure from Wikipedia article [[w:market structure]]

The '''[[w:Herfindahl index]]'''  ( [[w:fi:Herfindahlin indeksi]] ) (also known as Herfindahl–Hirschman Index, or HHI) is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. ( Wikipedia )

'''[[w:Game theory]]'''  ( [[w:fi:Peliteoria]] ) is a study of strategic decision making. More formally, it is "the study of mathematical models of conflict and cooperation between intelligent rational decision-makers."

== Week 46 - Macroeconomics ==
{{Taxation}}

'''[[w:Macroeconomics]]'''

'''[[w:Gross domestic product]]''' (GDP) ( [[w:fi:Bruttokansantuote]] )  is the market value of all officially recognized final goods and services produced within a country in a given period of time. ( Wikipedia )

:::'''[[w:Circular flow of income]]''' or circular flow refer to a simple economic model which describes the reciprocal circulation of income between producers and consumers. ( Wikipedia ) which is used to calculate the GDP.

:::'''Consumer expendiatures''' are divided to the [[w:services]], [[w:durable goods]] and [[w:consumables]] ( a.k.a. non-durables )

:::'''[[w:Unemployment]]'''  ( [[w:fi:Työttömyys]] ) 
::::[[w:Frictional unemployment]]
::::[[w:Structural unemployment]]
::::[[w:Cyclical unemployment#Cyclical unemployment|Cyclical unemployment]]

:::'''[[w:Business cycle]]''' (or economic cycle)  ( [[w:fi:Suhdannevaihtelu]] ) refers to economy-wide fluctuations in production or economic activity over several months or years. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (an expansion or boom), and periods of relative stagnation or decline (a contraction or recession). ( Wikipedia )

:::'''[[w:Consumer price index]]''' (CPI) ( [[w:fi:Kuluttajahintaindeksi]] )  measures changes in the price level of consumer goods and services purchased by households. ( Wikipedia )

== Week 47 - Financial markets, job markets==
* '''[[w:Financial markets]]''' ( [[w:fi:Rahoitusmarkkinat]] )  are important for enabling financing of '''[[w:investment]]s''' ( [[w:fi:Investointi]] )

* '''[[w:Industrial revolution]]''' ( 1750-1850 ) ( [[w:fi:Teollinen vallankumous]] ) 

* '''Economics growth model''' is affected by '''[[w:labor productivity]]''' and '''[[w:technological change]]'''.

* '''[[w:Human capital]]''' is the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value. ( Wikipedia )

* '''[[w:Creative destruction]]''' ( [[w:fi:Luova tuho]] ), sometimes known as Schumpeter's gale, is a term in [[w:economics]] which has since the 1950s become most readily identified with the Austrian American economist [[w:Joseph Schumpeter]],who adapted it from the work of [[w:Karl Marx]] and popularized it as a theory of [[w:Innovation economics|economic innovation]] and the [[w:business cycle]].

* Lack of [[w:Property rights (economics)]] and [[w:rule of law]] is keeping the poor countries poor.

== Notes ==
=== Chapter 3 ===
*Demand schedule != demand curve. Demand schedule is a table, not a curve
*In [[w:economics]], a '''complementary good''' is a [[w:Good (economics)|good]] ( [[w:fi:Investointi]] )  with a negative [[w:cross elasticity of demand]], in contrast to a [[w:substitute good]].
*[[w:Normal good]]s are any goods for which demand increases when income increases and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand. ( Wikipedia )

=== Chapter 6 ===
*A [[w:budget constraint]] represents the combinations of goods and services that a consumer can purchase given current prices with his or her income. ( Wikipedia )
*A [[w:Giffen good]]  ( [[w:fi:Investointi]] ) is one which people paradoxically consume more of as the price rises, violating the law of demand. In normal situations, as the price of a good rises, the substitution effect causes consumers to purchase less of it and more of substitute goods. In the Giffen good situation, the income effect dominates, leading people to buy more of the good, even as its price rises. ( Wikipedia )
* In economics and business, a [[w:network effect]] ( [[w:fi:Verkostovaikutus]] )  (also called '''network externality''' or demand-side economies of scale) is the effect that one user of a good or service has on the value of that product to other people.
* [[w:Path dependence]] ( [[w:fi:Polkuriippuvuus]] )  explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant. ( Wikipedia )
* [[w:Sunk cost]]s are retrospective (past) costs that have already been incurred and cannot be recovered. ( Wikipedia )

=== Chapter 10 ===
[[w:Allocative efficiency]] ( [[w:fi:Allokointitehokkuus]] )  is a type of economic efficiency in which economy/producers produce only those types of goods and services that are more desirable in the society and also in high demand.( Wikipedia )

=== Chapter 13 ===
[[w:Potential output]] (also referred to as "natural gross domestic product" or "Potential GDP")) refers to the highest level of real Gross Domestic Product output that can be sustained over the long term. ( Wikipedia + term Potential GDP as per book )

=== Chapter 16 ===
* [[w:Procyclical]] is a term used in economics to describe how an economic quantity is related to economic fluctuations. It is the opposite of countercyclical. However, it has more than one meaning. ( Wikipedia )
* [[w:Monetarism]]  ( [[w:fi:Monetaristinen taloustiede]] ) is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over longer periods and that objectives of monetary policy are best met by targeting the growth rate of the money supply. ( Wikipedia )
*[[w:Taylor rule]] is a monetary-policy rul

== More information ==
* [[:w:Category:Business economics]] ( [[w:Business economics]] is much wider definition then we had. )
* [[:w:Category:Commerce]] ( [[w:Commerce]] )

----
= Year 2=
= Global Business Environment =
= International Economics =

== Week 35 - Trade overview ==
* '''[[w:Business cycle|Business cycle]]s''' (or economic cycles) refer to economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free-enterprise principles. ( Wikipedia )

* '''[[w:Keynesian economics|Keynesian economics]]''' (keɪnziən) or '''Keynesianism''' is the view that in the [[w:short run|short run]], especially during [[w:recessions|recessions]], [[w:Output (economics)|economic output]] is strongly influenced by [[w:aggregate demand|aggregate demand]] (total spending in the economy). ( Wikipedia )

* '''[[w:Monetarism|Monetarism]]'''  is a school of economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within [[w:monetary economics|monetary economics]] that variation in the [[w:money supply|money supply]] has major influences on [[w:measures of national income and output|national output]] in the short run and the [[w:price level|price level]] over longer periods and that objectives of [[w:monetary policy|monetary policy]] are best met by targeting the growth rate of the [[w:money supply|money supply]]. ( Wikipedia )

* '''[[w:Exchange rate policy]]''' or an '''exchange-rate regime''' is the way an authority manages its [[w:currency|currency]] in relation to other currencies and the [[w:foreign exchange market|foreign exchange market]]. It is closely related to [[w:monetary policy|monetary policy]] and the two are generally dependent on many of the same factors. ( Wikipedia )

* A '''[[w:Taylor rule]]''' is a [[w:monetary policy|monetary-policy]] rule in economics that stipulates how much the [[w:central bank|central bank]] should change the [[w:nominal interest rate|nominal interest rate]] in response to changes in [[w:inflation|inflation]], [[w:Gross Domestic Product|output]], or other economic conditions. ( Wikipedia )


{{Foreign exchange}}
{{International trade}} 

== Week 36 - Classical trade theories ==

* '''''[[w:Factors of production|Factors of production]]''' are the ''inputs'' to the production process. ''Finished goods'' are the ''output''. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a [[w:production function|production function]]. There are three ''basic'' (AKA classical) factors of production: '''[[w:land|land]], [[w:Labor (economics)|labor]], [[w:Capital (economics)|capital]]'''''( Wikipedia )

* '''Gross domestic product''' ('''[[w:GDP|GDP]]''') is the [[w:market value|market value]] of all officially recognized final goods and services produced within a country in a given period of time. GDP [[w:per capita|per capita]] is often considered an indicator of a country's [[w:standard of living|standard of living]] ( Wikipedia )

* '''[[w:David Ricardo|David Ricardo]]''' (18 April 1772 – 11 September 1823) was a [[w:United Kingdom|British]] [[w:political economy|political economist]]. He was often credited with systematizing economics, and was one of the most influential of the [[w:classical economics|classical economists]], along with [[w:Thomas Malthus|Thomas Malthus]], [[w:Adam Smith|Adam Smith]], and [[w:John Stuart Mill|John Stuart Mill]]... ( Wikipedia )

* '''[[w:International trade|International trade]]''' is the exchange of [[w:Capital (economics)|capital]], [[w:good (economics)|goods]], and [[w:Service (economics)|services]] across [[w:international borders|international borders]] or territories ( Wikipedia )

** '''[[w:History of international trade|History of international trade]]'''

* '''[[w:Income distribution|Income distribution]]''' is how a nation’s total [[w:GDP|GDP]] is distributed amongst its population. Income and distribution has always been a central concern of economic theory and economic policy. Classical economists such as [[w:Adam Smith|Adam Smith]], [[w:Thomas Malthus|Thomas Malthus]] and [[w:David Ricardo|David Ricardo]] were mainly concerned with [[w:factor income distribution|factor income distribution]], that is, the [[w:Distribution (economics)|distribution]] of [[w:income|income]] between the main [[w:factors of production|factors of production]], land, [[w:Labour economics|labour]] and [[w:Capital (economics)|capital]]. ( Wikipedia )

* '''[[w:Exchange rate|Exchange rate]]s'''

* '''[[w:Terms of trade|Terms of trade]]''' ('''TOT''') refers to the relative price of exports in terms of imports. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods. ( Wikipedia )

* '''[[w:Devaluation|Devaluation]]''' in modern [[w:monetary policy|monetary policy]] is a reduction in the value of a [[w:currency|currency]] with respect to those goods, services or other monetary units with which that currency can be exchanged. ( Wikipedia )

* '''[[w:Productivity|Productivity]]''' is the ratio of [[w:Output (economics)|output]] to [[w:Factor of production|inputs]] in production; it is a measure of the efficiency of [[w:production (economics)|production]]. ( Wikipedia )
** Sources of productivity 

* '''[[w:Heckscher-Ohlin]]''' can refer to either
** '''[[w:Heckscher–Ohlin model|Heckscher–Ohlin model]]''' ('''H–O model''') is a [[w:general equilibrium|general equilibrium]] mathematical model of [[w:International economics|international trade]], developed by [[w:Eli Heckscher|Eli Heckscher]] and [[w:Bertil Ohlin|Bertil Ohlin]] at the [[w:Stockholm School of Economics|Stockholm School of Economics]]. It builds on [[w:David Ricardo|David Ricardo's]] theory of [[w:comparative advantage|comparative advantage]] by predicting patterns of commerce and production based on the [[w:Factors of production|factor]] endowments of a trading region.
** '''[[w:Heckscher–Ohlin theorem|Heckscher–Ohlin theorem]]''' is one of the four critical theorems of the Heckscher–Ohlin model. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively.

* '''[[w:Comparative advantage|Comparative advantage]]''' refers to the ability of a party to produce a particular good or service at a lower [[w:Marginal cost|marginal]] and [[w:opportunity cost|opportunity cost]] over another. ( Wikipedia )

== Week 37 - Modern trade theories, trade policy ==

* '''Vernon's [[w:Product life-cycle theory|Product life-cycle theory]]''' is an economic theory that was developed by Raymond Vernon in response to the failure of the [[w:Heckscher-Ohlin model|Heckscher-Ohlin model]] to explain the observed pattern of [[w:international trade|international trade]]. The theory suggests that early in a product's life-cycle all the parts and labor associated with that product come from the area in which it was invented. After the product becomes adopted and used in the world markets, production gradually moves away from the point of origin. ( Wikipedia )

* '''[[w:Economies of scope|Economies of scope]]''' are conceptually similar to [[w:economies of scale|economies of scale]]. Whereas economies of scale for a firm primarily refers to reductions in the [[w:average cost|average cost]] (cost per unit) associated with increasing the scale of production for a ''single product type'', economies of scope refers to lowering the [[w:average cost|average cost]] for a firm in producing ''two or more'' products.

* In economics, '''[[w:internalization#Economics and management|internalization]]''' can refer to the practice of multinational enterprises (MNEs) to execute transactions within their organization rather than relying on an outside market. ( Wikipedia )

* The '''[[w:eclectic paradigm|eclectic paradigm]]''' is a theory in economics and is also known as the '''OLI-Model''' or '''OLI-Framework'''. It is a further development of the theory of internalization and published by John H. Dunning in 1980. ( Wikipedia )

=== Export based methods ===

'''indirect [[w:export]]ing''' is done by

:#) An '''export house''' buys products from a domestic firm and sells them abroad on its own account ( teacher )
:#) A '''[[w:confirming house]]''' is a specialised UK agency that purchases and arranges the [[w:export]] of goods on the behalf of overseas buyers. They finance the movement of goods into the country by offering short-term credit to importers and guaranteeing, or confirming, payment to the suppliers in the suppliers own domestic currency. The confirming house usually negotiates the price with the suppliers, ships, insures and provides information on the goods on the overseas buyers behalf. ( Wikipedia )
:#) A '''buying house''' performs similar functions to those of the confirming house but is more active in seeking out sellers to match the buyer’s particular needs ( teacher )

In '''direct exporting''' a firm is distributing and selling its own products to the foreign market

'''Non-equity methods'''

:A firm sells [[w:technology|technology]] or [[w:know-how|know-how]] under some form of [[w:contract|contract]], often involving [[w:patent|patent]]s, [[w:trademark|trademark]]s and [[w:copyright|copyright]]s ([[w:intellectual property rights|intellectual property rights]]) ( teacher )

:#) '''[[w:licensing|licensing]]'''
:#) '''[[w:franchising|franchising]]'''
:#) '''[[w:management|management]] [[w:contracting|contracting]]'''
:#) '''technical service agreements'''
:#) '''[[w:strategic alliance|strategic alliance]]s'''

=== Trade policy ===

{{Q|A '''[[w:commercial policy|commercial policy]]''' (also referred to as a '''trade policy''' or '''international trade policy''') is a set of rules and regulations that are intended to change international [[w:trade flows|trade flows]], particularly to restrict [[w:imports|imports]].|Wikipedia|[[w:trade policy|trade policy]]}}

* Various instruments of '''[[w:trade policy|trade policy]]''': including '''[[w:tariff|tariff]]s, [[w:quota|quota]]s, [[w:export subsidies|export subsidies]], [[w:voluntary export restraints|voluntary export restraints]] and local content requirements'''.

* The effects of these policies on [[w:price|price]]s and [[w:trade|trade]] [[w:Volume (finance)|volume]]s

* [[w:Consumer|Consumer]] and [[w:producer|producer]] [[w:surplus|surplus]]: [[w:welfare|welfare]] effects of various [[w:protectionist|protectionist]] measures

* The '''[[w:political economy|political economy]]''' of '''[[w:trade theory|trade theory]]''': why certain restrictions exist

* [[w:Optimum|Optimum]] [[w:tariff|tariff]]: countries can improve their terms of trade and their [[w:national|national]] [[w:welfare|welfare]]
*  If '''[[w:labor market|labor market]]''' is not functioning properly ([[w:market failure|market failure]]), the theory of [[w:second best|second best]], [[w:marginal benefit|marginal social benefit]] - considerations of [[w:income distribution|income distribution]]

* '''[[w:GATT|GATT]], [[w:WTO|WTO]], [[w:customs union|customs union]], [[w:free trade area|free trade area]]s'''

== Week 38 - No class, work on report ==

== Week 39 - International finance overview ==
== Week 39 - Finance ==
'''[[w:Finance|Finance]]''' is the science of funds management, or the allocation of [[w:assets|assets]] and liabilities over time under conditions of certainty and uncertainty. A key point in finance is the [[w:time value of money|time value of money]], which states that a unit of currency today is worth more than the same unit of currency tomorrow. Finance aims to price assets based on their risk level, and expected rate of return. Finance can be broken into three different sub categories: [[w:public finance|public finance]], [[w:corporate finance|corporate finance]] and [[w:personal finance|personal finance]]. ( Wikipedia )
What financial managers do?
* '''[[w:Treasurer|Treasurer]]''': [[w:company|company]] – [[w:markets|markets]], external
* '''[[w:Controller|Controller]] / [[w:comptroller|comptroller]]''': [[w:business unit|business unit]]s, internal
* Others: [[w:Credit manager|Credit manager]], [[w:cash management|cash management]], [[w:risk management|risk management]], insurance management

* '''[[w:Markets|Markets]]'''
::* '''[[w:money market|money market]]''': < 1 year
::* '''[[w:capital market|capital market]]''': > 1 year

Price of money: '''[[w:Interest rate|Interest rate]]''' + '''[[w:Margin (finance)|bank margin|]]'''
=== Markets in Financial Instruments Directive (MiFID) ===
'''[[w:Markets in Financial Instruments Directive|Markets in Financial Instruments Directive]]''' ('''MiFID''')

=== Financial analysis ===
* '''[[w:Financial analysis|Financial analysis]]''' (also referred to as '''financial statement analysis''' or '''accounting analysis''' or '''Analysis of finance''') refers to an assessment of the viability, stability and profitability of a [[w:business|business]], sub-business or [[w:project|project]]. ( Wikipedia )

:* '''[[w:balance sheet|balance sheet]]''', '''[[w:income statement|profit and loss account]]'''
::* horizontal: trend over the years
::* vertical: internal structure of balance sheet or income statement
:* '''[[w:ratio|ratio]] [[w:Analysis#Business|analysis]]''': [[w:liquidity|liquidity]], [[w:activity|activity]], [[w:leverage|leverage]], [[w:profitability|profitability]], [[w:market value|market value]]

Why? because markets make valuations based on financial analysis.

* '''[[w:Financial forecast|Financial forecast]]ing''', '''[[w:budget|budget]]ing'''

:* '''[[w:sales|sales]]''', '''[[w:production|production]]''', '''[[w:inventory|inventory]]''', '''[[w:materials|materials]]''', '''[[w:labor|labor]]''', '''[[w:factory overhead|factory overhead]]''', '''[[w:selling|selling]]''' and '''[[w:administrative|administrative]] [[w:expense|expense]]s''' -> '''[[w:pro forma|pro forma]]''' '''[[w:income statement|income statement]]'''
:* '''financial budget''': '''[[w:cash|cash]] budget''', '''pro forma [[w:balance sheet|balance sheet]]'''

=== Balance sheet items ===

:* '''[[w:working capital|working capital]]''' == '''[[w:current asset|current asset]]s''' ~ what you have (liquid)
:* '''current assets''' == '''[[w:cash|cash]]''', '''[[w:accounts receivable|accounts receivable]]''', '''[[w:inventory|inventory]]'''
:* '''[[w:total assets|total assets]]''' == current assets (fairly liquid) + '''[[w:capital assets|capital assets]]''' ([[w:machine|machine]]s, [[w:equipment|equipment]], not liquid)

:* '''[[w:Liability (financial accounting)|Liabilities|]]''': 
::** [[w:current liability|current|]] (short term)
::** [[w:Long-term liabilities|long-term|]], [[w:stockholder|stockholder]]s [[w:equity (finance)|equity|]]

:* '''[[w:Current liabilities|Current liabilities]]''' ~ what you owe (short term)

:* '''[[w:Trade credit|Trade credit]]''' == '''[[w:accounts payable|accounts payable]]'''

:* '''[[w:Bank|Bank]] [[w:loan|loan]]'''s

:* '''Bankers’ acceptances'''

:* '''[[w:commercial|commercial]] [[w:finance company|finance company]]''' loans

:* '''[[w:commercial paper|commercial paper]]'''

:* '''[[w:receivable|receivable]] [[w:financing|financing]]'''

:* '''[[w:inventory|inventory]] financing'''

* '''[[w:Time value of money|Time value of money]]''': especially when long-term financing, -> [[w:interest|interest]]

:* '''[[w:future value|future value]]s ([[w:compounding|compounding]])'''
:* '''[[w:present value|present value]]s ([[w:discounting|discounting]])'''

=== Risk, return and valuation ===

* '''[[w:Risk|Risk]]''', '''[[w:return|return]]''' and '''[[w:valuation|valuation]]'''

*'''[[w:probability|probability]],''' “expected”

* measuring: '''[[w:standard deviation|standard deviation]]'''

* '''[[w:business risk|business risk]]''', '''[[w:liquidity risk|liquidity risk]]''', '''[[w:default risk|default risk]]''', '''[[w:market risk|market risk]]''', '''[[w:interest rate risk|interest rate risk]]''', '''[[w:purchasing power|purchasing power]] risk''' (inflation)

Risk of a '''[[w:Portfolio (finance)|portfolio|]]''' (combination of several items)

* portfolio return, risk: correlation

* '''[[w:Diversification (finance)|diversifiable]] [[w:risk|risk]]''' (using correlation information) + nondiversifiable risk (not unique to a given security)

* business, liquidity, default: diversifiable

* market, interest rate, inflation: nondiversifiable

* [[w:Capital asset pricing model|Capital asset pricing model]] (CAPM), APM

=== Bond and stock valuation ===
[[w:bond valuation|Bond]] and [[w:stock valuation|stock valuation]]

* bond: [[w:present value|present value]] of [[w:periodical|periodical]] [[w:interest|interest]] [[w:payment|payment]]s + [[w:principal|principal]]

* stock: present value of periodical [[w:dividend|dividend]]s

* what is the [[w:discount rate|discounting rate]]? [[w:interest rate|interest rate]]? [[w:rate of return|rate of return]]?

=== Capital budgeting, long-term financial decisions ===
[[w:Capital budgeting|Capital budgeting]], [[w:long-term|long-term]] [[w:financial|financial]] [[w:decision|decision]]s

* discounting

'''[[w:Cash flow forecasting|Cash flow forecasting]]''' or '''cash flow management''' is a key aspect of [[w:Finance|financial management]] of a business, planning its future cash requirements to avoid a crisis of [[w:liquidity|liquidity]]. ( Wikipedia )

* measuring (planning, guessing) cash flows: future!

* [[w:payback period|payback period]], [[w:NPV|NPV]], [[w:IRR|IRR]], [[w:profitability index|profitability index]]

* mutually exclusive investments

* [[w:lease|lease]]-[[w:purchase|purchase]] decision

* capital budgeting and inflation

Capital budgeting under risk

* [[w:probability distribution|probability distribution]]s, [[w:Risk-adjusted return on capital|risk-adjusted]] [[w:discount rate|discount rate]], [[w:certainty equivalent|certainty equivalent]], [[w:simulation|simulation]], [[w:sensitivity analysis|sensitivity analysis]], [[w:probability tree|probability tree]]s

'''Cost of capital?'''

* [[w:cost of debt|cost of debt]]

* [[w:cost of equity|cost of equity]] capital

'''[[w:Leverage|Leverage]] and [[w:capital structure|capital structure]]'''

* leverage? since [[w:fixed costs|fixed costs]]

* '''[[w:break-even analysis|break-even analysis]]''''

does capital structure matter?

=== International finance ===

==== The world of international finance ====

* '''[[w:Timeline of international trade|growth]] of [[w:international trade|international trade]] versus [[w:domestic trade|domestic trade]]

* '''increased [[w:globalization|globalization]] of [[w:financial market|financial]] and real-asset markets

* '''increased [[w:volatility|volatility]] of [[w:exchange rate|exchange rate]]s

* increased importance of '''[[w:multinational corporations|multinational corporations]]''' and [[w:transnational|transnational]] [[w:alliance|alliance]]s

* The [[w:market|market]]s for [[w:foreign exchange|foreign exchange]]

==== An introduction to exchange rates ====
* '''[[w:spot market|spot]] [[w:foreign exchange market|foreign exchange market]]'''

* '''direct versus indirect [[w:exchange|exchange]] and cross '''[[w:exchange rate|exchange rate]]'''s

==== Forward market ====

* '''[[w:forward exchange|forward exchange]]''' '''[[w:premium|premium]]s''' and '''[[w:discount|discount]]'''s

* '''[[w:forward rate|forward rate]]'''s versus expected '''[[w:future|future]] [[w:spot rate|spot rate]]'''s

* '''[[w:flexibility|flexibility]]''' of '''[[w:forward exchange|forward exchange]]'''

* '''[[w:forward|forward]] [[w:Financial quote|quotation|]]s'''

==== Currency futures and options markets ====

* '''[[w:currency future|currency future]]'''

* '''[[w:futures contract|futures contract]]s''' versus '''[[w:forward contract|forward contract]]s'''
::** A '''futures contract''' (more colloquially, '''futures''') is a '''''standardized''''' [[w:contract|contract]] between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed upon today (the ''futures price'' or [[w:strike price|strike price]]) with delivery and payment occurring at a specified future date, the ''delivery date''. ( Wikipedia )
::** A '''forward contract''' or simply a '''forward''' is a '''''non-standardized contract''''' between two parties to buy or to sell an asset at a specified future time at a price agreed upon today. ( Wikipedia )

* '''[[w:currency option|currency option]]s'''

== Week 40 - Exchange rate determination ==
* '''[[w:Trade balance|Trade balance]]''' == [[w:export|export]]s - [[w:import|import]]s
:: >0 leads to spot rate [[w:revaluation|revaluation]]
:: <0 leads to spot rate [[w:devaluation|devaluation]]

*'''[[w: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 [[w:Good (economics and accounting)|goods]], [[w:Service (economics)|services]], [[w:financial capital|financial capital]], and [[w:Transfer payments|financial transfers]]. ( Wikipedia )

::* '''[[w:Current account|Current account]]''' is one of the two primary components of the [[w:balance of payments|balance of payments]], the other being [[w:capital account|capital account]]. It is the sum of the [[w:balance of trade|balance of trade]] (i.e., net revenue on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers. ( Wikipedia )

::* '''[[w:Capital account|Capital account]]''' (also known as '''financial account''') is one of two primary components of the [[w:balance of payments|balance of payments]], the other being the [[w:current account|current account]]. Whereas the ''current account'' reflects a nation's net income, the ''capital account'' reflects net change in ownership of national assets. ( Wikipedia )

* '''[[w:Spot market|Spot market]]''' or '''cash market''' is a [[w:public market|public]] [[w:financial market|financial market]], in which [[w:financial instruments|financial instruments]] or commodities are traded for [[w:spot date|immediate delivery]]. It contrasts with a [[w:futures market|futures market]] in which delivery is due at a later date. ( Wikipedia )

* '''[[w:Spread|Spread]]''' is the difference in price between related securities ( Wikipedia )

*'''[[w:Interest rate parity|Interest rate parity]]''' is a no-[[w:arbitrage|arbitrage]] condition representing an [[w:economic equilibrium|equilibrium]] state under which investors will be indifferent to [[w:interest rate|interest rate]]s available on [[w:demand deposit|bank deposits]] in two countries. ( Wikipedia )

* '''A [[w:futures market|futures market]]''', a '''futures exchange''' or '''futures market''' is a central financial exchange where people can trade standardized [[w:futures contract|futures contract]]s; that is, a contract to buy specific quantities of a [[w:commodity|commodity]] or [[w:financial instrument|financial instrument]] at a specified price with [[w:Delivery (commerce)|delivery|]] set at a specified time in the future. ( Wikipedia )
::** The '''[[w:forward exchange market|forward exchange market]]''' is a [[w:Financial market|market]] for [[w:contracts|contracts]] that ensure the future delivery of a foreign [[w:currency|currency]] at a specified [[w:exchange rate|exchange rate]]. The price of a '''[[w:forward contract|forward contract]]''' is known as the '''forward price'''. ( Wikipedia )
::** The '''forward price''' (or sometimes [[w:forward rate|forward rate]]) is the agreed upon price of an [[w:asset|asset]] in a  [[w:forward contract|forward contract]]. ( Wikipedia )

* '''[[w:Arbitrage|Arbitrage]]''' is the practice of taking advantage of a price difference between two or more [[w:market|market]]s: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the [[w:market price|market price]]s. ( Wikipedia )

== Week 41 - Exchange rate risk, risk and risk management==
 '''[[w:Risk|Risk]]''' and '''[[w:risk management|risk management]]'''

'''Risk''' is the potential of loss (an undesirable outcome, however not necessarily so) resulting from a given action, activity and/or inaction. ( Wikipedia )

'''Risk management''' is the identification, assessment, and prioritization of [[w:risk|risks|]] (defined in [[w:ISO 31000|ISO 31000]] as ''the effect of uncertainty on objectives'', whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events ( Wikipedia )

'''Managing [[w:foreign exchange risk|foreign exchange risk]]'' and [[w:exposure|exposure]]

* using international [[w:financial market|financial market]] to deal with the special opportunities and risks of international trade and investments

* foreign exchange exposure – a measure of the sensitivity of changes in [[w:domestic|domestic]] [[w:currency|currency]] values of [[w:assets|assets]], [[w:liabilities|liabilities]], or [[w:operating income|operating income]]s to unanticipated changes in [[w:exchange rate|exchange rate]]s

* both domestic and foreign financial instruments and incomes can face foreign exchange exposure

* exchange rate risk: variability of domestic-currency values of assets, liabilities, and incomes

* exchange rate exposure: the amount at risk

* international accounting principles: in '''[[w:financial statements|financial statements]]''' accounting exposure – real exposure is the underlying exposure

* the effect of exchange rates on sales and operating profitability: operating exposure

* management of exposure and risk: means of dealing with risk and exposure – '''[[w:hedging|hedging]]'''

==== Risk management ====

* it is possible to use [[w:borrowing|borrowing]], [[w:investing|investing]], and the [[w:spot exchange market|spot exchange market]] to achieve the same result as would be obtained by using the forward market

* importer that must pay its currency trade loan within 30 days: borrow in home currency (€, 30 days), buy the foreign exchange on the spot market ($), invest in foreign exchange (in New York, for 30 days), use foreign currency for paying the trade loan ($, after 30 days), and repay the domestic currency debt (€, after 30 days)

* exporter that receives a foreign-currency payment after 60 days: borrow in the foreign currency that is to received ($, 60 days), sell the borrowed foreign currency spot ($ à €), invest or otherwise employ domestic currency at home (€, 60 days), receive the payment from abroad ($ after 60 days), and repay the foreign currency debt with export earnings ($ after 60 days)

* [[w:hedging|hedging]] via [[w:currency of invoicing|currency of invoicing]] – by [[w:invoicing|invoicing]] in own currency: no transaction risk nor exposure but the economic exposure still remains (if exchange rates change, the customer abroad faces changed prices, and according to price elasticity, the quantity demanded will change)

* hedging via [[w:mixed-currency invoicing|mixed-currency invoicing]] – [[w:composite currency|composite currency]] (SDR), currency baskets (e.g. ½ dollars, ½euros) or ”cocktails”, usually this results in risk and exposure reduction since they offer some diversification risk (if the value of dollar goes up, usually the value of euro goes down)

* hedging via selection of supplying country: sourcing – use domestic inputs or inputs from EMU-area

* Use '''[[w:forwards|forwards]]''' or '''[[w:currency option|currency option]]s''

== Week 42 - Presentation ==

== Home exam ==
#) Explain why neighboring countries tend to [[w:trade|trade]] extensively with each other.
#) Compare [[w:David Ricardo|Ricardo]]’s [[w:comparative advantage|comparative advantage]] theory and [[w:Heckscher-Ohlin|Heckscher-Ohlin]] [[w:Financial endowment|endowment]] model as explanations for [[w:international trade|international trade]].
#) Vernon’s [[w:product life-cycle theory|product life-cycle theory]] explaining [[w:export|export]]s.
#) External [[w:economies of scale|economies of scale]] explaining intraindustry trade.
#) What are the [[w:welfare|welfare]] effects of [[w:tariff]]s?
#) What are various forms of [[w:trade barrier|trade barrier]]s?
#) Arguments for [[w:protectionism|protection]](ism).
#) Compare predatory dumping and international [[w:price discrimination|price discrimination]].
#) [[w:Preferential trading area|Preferential trade arrangements]].
#) Why there is [[w:foreign exchange risk|foreign exchange risk]]?
#) How is private [[w:saving|saving]] related to the [[w:current account|current account]]?
#) Compare [[w:spot rate|spot rate]]s, [[w:forward rates|forward rates]] and [[w:Swap (finance)|swap]]s.
#) Explain how a [[w:call option|call (foreign-currency) option]] is useful in international trade.
#) Explain how a [[w:put option|put (foreign-currency) option]] is useful in international trade.
#) [[w:Purchasing power parity|Purchasing power parity]] and [[w:interest rate parity|interest parity]] explaining [[w:exchange|exchange]] [[w:forward exchange rate|forward exchange rate]]s.
#) What are the three concepts of [[w:exchange rate|exchange rate]] exposure?
#) What are the causes of [[w:currency crisis|currency crises]]?
#) What is the [[w:Marshall-Lerner condition|Marshall-Lerner condition]]?
#) Different approaches to the [[w:balance of payments|balance of payments]].
#) The [[w:monetarism|monetary]] approach explaining exchange rates.

= Finance =
* [[Finance]]


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