B207B

Shaping Business Opportunities II

 Block 2
Session 5: Economic and financial flows in a globalized
world
The role of international financial institutions
International financial institutions play an important
enabling function for the global economic system. They
are established by countries to ensure mechanisms for
international financial cooperation, for example by
providing financial support (via grants and loans) for
economic and social development activities in developing
countries.
‫دور المؤسسات المالية الدولية‬
‫تلعب المؤسسات المالية الدولية وظيفة تمكينية مهمة‬
‫ وقد أنشأتها البلدان لضمان آليات‬.‫للنظام االقتصادي العالمي‬
‫ على سبيل المثال من خالل تقديم‬، ‫للتعاون المالي الدولي‬
‫الدعم المالي (من خالل المنح والقروض) ألنشطة التنمية‬
‫االقتصادية واالجتماعية في البلدان النامية‬.

Session 5: Economic and financial flows in a globalized

The two key international financial
institutions
The International Monetary Fund (IMF):
The World Bank

‫المؤسستان الماليتان الدوليتان الرئيسيتان‬

‫( صندوق النقد الدولي‬IMF):
‫البنك العالمي‬

Session 5: Economic and financial flows in a globalized

IMF
The International Monetary Fund (IMF) was conceived at a United
Nations (UN) conference in Bretton Woods, New Hampshire, United
States of America, in July 1944.
Founding countries sought to build a framework for economic
cooperation to avoid a repetition of the competitive devaluations that had
contributed to the Great Depression of the 1930s.
Competitive devaluations are made by countries that reduce the value of
their exchange rates to make their exports cheaper in order to gain a
competitive advantage over other countries. 
The IMF’s primary purpose is to ensure the stability of the international
monetary system – the system of exchange rates and international
payments that enables countries (and their citizens) to transact with each
other.

Session 5: Economic and financial flows in a globalized

The World Bank
The World Bank Group, like the IMF, was established in 1944.
It has its headquarters in Washington, D.C., and has more than 10,000
employees in more than 120 offices worldwide.
The World Bank is made up of 189 member countries, like a cooperative.
These member countries, or shareholders, are represented by a Board of
Governors, who are the ultimate policymakers at the World Bank.
Generally, the governors are ministers of finance or ministers of
development of the member countries.
The World Bank Group has set two goals for the world to achieve by 2030:
end extreme poverty by decreasing the percentage of people living on less than
US$1.90 a day to no more than 3%;
promote shared prosperity by fostering the income growth of the bottom 40%
for every country.

Session 5: Economic and financial flows in a globalized

Block 2- Reading 4
Economic and financial flows
in a globalised world
The balance of payments
The balance of payments is an economic indicator that
tracks all transactions between individuals, firms or
government bodies of a given country and the rest of the
world during a certain period of time (a quarter of a year
or one year).
 There are three main parts of the balance of payments:
The current account
The capital account
The financial account

Reading 4: Economic and financial flows in a globalised

The balance of payments
The current account – registers payments for imports and exports for
trade in goods and/or services, plus incomes and transfers of money to
and from abroad made by individuals.
The capital account – records all transfers of capital to and from abroad.
For example, this may involve a German firm building a factory in
Brazil. This is counted as a credit on the Brazilian capital account.
The financial account – records financial inflows and also covers
claims on or liabilities to non-residents, specifically with regard to
financial assets; it includes direct investments, portfolio investments
and reserve assets. Reserve assets are, for example, currencies,
commodities or other financial capital held by monetary authorities,
such as central banks.

Reading 4: Economic and financial flows in a globalised

The balance of payments
The whole account must balance, just as it would for the financial statement.
This is a technical requirement, so surpluses or deficits can be recorded on
any specific part of the account.
The balance of payments can help us to understand the comparative position
of a country in relation to others.
For example, a country with a large current account deficit is a country that
is borrowing money to purchase goods and services produced outside the
country.
The existence of these relationships can lead to global imbalances between
countries. Global imbalances are reflected in large and persistent deficits or
surpluses in the current, capital and/or financial account balances.
The adjustment of global imbalances can be left to market forces and/or
corrected by government actions

Reading 4: Economic and financial flows in a globalised

FDI: Foreign direct investments
FDIs are a form of investment made by companies (for example,
multinationals) that establish plants and offices in other countries in
order to produce or to sell their products and services in countries
around the world
FDIs are aimed at securing operational control and they should be
distinguished from portfolio investments (PIs) whereby financial
assets are bought and sold; in this latter case, individuals or even
companies make financial investments in other countries, for
example by buying shares, rather than setting up their own
manufacturing plant, a distribution channel or stores.
FDIs represent an important element of the global trade
environment and they are particularly critical for some countries.

Reading 4: Economic and financial flows in a globalised

Example of multinational
The Tommy Hilfiger Corporation is
headquartered in Hong Kong,
incorporated in the British Virgin Islands.
It is listed on the New York Stock Exchange,
it’s owned primarily by international institutional investors,
held its annual meeting of shareholders in Barbados.
(It) sourced production to manufacturers in Mexico and
Asia.
(It) Licensed its name to producers globally and retailed its
classic American clothing in Europe and North America.

Reading 4: Economic and financial flows in a globalised