ECONOMIC INTEGRATION EFFORTS OUTSIDE THE AMERICAS
Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP)
Formed after the US withdrawal from TPP negotiations, the CPTPP has 11
Asia-Pacific members and aims to reduce trade barriers, set new rules for
digital commerce and foreign investment, and increase labor and
environmental protections. Admission of China and Taiwan caused
diplomatic tensions but could ease their relations.
Association of Southeast Asian Nations (ASEAN)
Established in 1967 and now with 10 Southeast Asian countries, ASEAN
promotes economic, social, and cultural development in the region along
with political stability. It also can help resolve disputes peacefully. Recent
additions expand its labor pool and resources. Lack of common policies
and some instability challenge integration.
Regional Comprehensive Economic Partnership (RCEP)
Launched in 2022 between the 10 ASEAN states and 6 other Asian
countries, RCEP forms the world's largest trade bloc at over 2 billion
people. Goals are to expand market access, integrate regional supply
chains including small businesses, and support free and fair trade. China
advances its regional interests while the US remains uninvolved.
Asia Pacific Economic Cooperation (APEC)
APEC began informally in 1989 and now has 21 Asia-Pacific members. It
accounts for over half of world output. Rather than a formal trading bloc,
APEC focuses on dialogue and practical initiatives like standardizing
customs procedures to expand and simplify regional commerce. Progress
was fastest early on.
Africa's Integration Efforts
Long-running groups like ECOWAS (1975) in West Africa and the pan-
continental African Union (2002) have had partial success at integration
and boosting intra-regional trade. The African Continental Free Trade Area
(AfCFTA) launched in 2021 with 54 countries represents the most
ambitious effort yet at establishing a single market. Cutting tariffs and
barriers aims to spur industrialization and jobs.
UNDERSTANDING THE INTERNATIONAL CAPITAL MARKET
The International Capital Market This market links lenders and borrowers
globally to allocate financial capital efficiently. It provides debt financing
through loans and bonds and equity financing through stock. Information
technology aids fast decisions. Major benefits are expanding funding
options, especially for developing economies, and diversifying risk.
International Bond Market
The bond market encompasses all bonds sold abroad by issuers. Investors
include banks, pension and mutual funds. International bonds include
eurobonds issued abroad in foreign currency and foreign bonds sold
locally in domestic currency. Growth comes from emerging market need
and developed market low rates. But currency risk is a concern.
International Equity Market
The equity market covers all foreign stock trading. Privatization, emerging
market growth, investment banks, and electronic trading spur activity.
Companies gain funding and investors get portfolio diversification. Listing
and selling globally is now common.
Eurocurrency Market
Eurocurrencies are deposits held internationally in foreign banks. The
market lacks regulation, adding risk but allowing lower costs. Major
players are governments, big banks, corporations and wealthy individuals
moving vast sums. Appeal comes from avoiding domestic rules and bank
fees. Key rates set in London guide transactions.
THE FOREIGN EXCHANGE MARKET
This market determines currency exchange rates and facilitates
international transactions. Banks quote two rates - the lower bid rate to
buy currency and the higher ask rate to sell it. An exchange rate states
the amount needed of one currency to buy a unit of another.
Functions of the Foreign Exchange Market
The market serves to convert currencies for trade and investment, hedge
against potential losses from rate changes, profit from rate differences via
arbitrage, and speculate on future rate shifts.
Currency Conversion
Companies use banks to exchange currencies to pay international
suppliers and repatriate foreign subsidiary profits. Currency hedging
insures against adverse rate moves affecting transactions.
Currency Arbitrage
Traders exploit instant rate discrepancies between markets to buy low and
sell high for profit. Interest arbitrage exploits rate-adjusted yield
differences on securities. Both require large sums and bear risk.
Currency Speculation
Traders bet on future exchange rate movements, buying if they expect
appreciation or selling if they expect depreciation. It bears high risk but
can yield high rewards. Speculation intensified Asia's 1997 financial crisis.
Exchange-Rate
Risk Businesses face transaction exposure from rate changes affecting
existing deals, translation exposure from rate impacts on financial
statements, and economic exposure influencing competitiveness.
Companies must manage risk, which the euro helps address in Europe.
