Colegio De Sta. Lourdes of Leyte Foundation Inc.

Barangay 1 Quezon Tabontabon, Leyte

Module 4: MARKET INTEGRATION

Focused Discussions

Chapter 3: MARKET INTEGRATION

INTODUCTION:
The social institution that has one of the biggest impacts on society is the
economy. You might think of the economy in terms of number-number of
unemployment, gross domestic product (GDP), or whatever the stock market is doing
today. While we often talk about it in numerical terms, the economy is composed of
people. It is the social institution that organizes all production, consumption, and trade
of goods in the society. There are many ways in which product can be made,
exchanged, and used. Think about capitalism or socialism. This economic system and
the economic revolutions that created them shape the way people live their lives.
Economic systems vary from one society to another. But in any given economy,
production typically splits into three sectors. The primary sector extracts raw materials
from natural environments. Workers from farmers miner fit well in the primary sector.
The secondary sectors gain the raw materials and transforms them into manufactured
goods. This means, for example that someone from the primary sector extracts oil from
the earth then someone from the secondary sector refines the petroleum to gasoline.
Whereas, the tertiary sector involves services rather than goods. It offers services by
doing things rather than making things. Thus, economic system is more complicated or
at least, more sophisticated than the way things used to be for much of human history.
This chapter will show the contributions of the different financial and economic
institutions that facilitated the growth of the global economy. The history of the global
market will be discussed by looking at the different economic revolution. The growth and
dynamics of multinational corporation that are emerging in today’s world economy will
also be examined.

International Financial Institution 

An international financial institution (IFI) is a financial institution that has been

established (or chartered) by more than one country, and hence is subject
to international law. Its owners or shareholders are generally national governments,
although other international institutions and other organizations occasionally figure as
shareholders. The most prominent IFIs are creations of multiple nations, although some
bilateral financial institutions (created by two countries) exist and are technically IFIs.
The best known IFIs were established after World War II to assist in the reconstruction
of Europe and provide mechanisms for international cooperation in managing the global
financial system.

What is the purpose of the international financial institution?

They play a major role in the social and economic development of countries with
emerging economies. This includes advising, funding, and assisting on development
projects to: reduce global poverty and improve living conditions and standards. support
sustainable economic, social and institutional development.

Advantages of Financial Institutions

 Procurement of Funds. Financial institutions are crucial because they make it
possible for people to receive money when they need it. ...
 Offer Safety. ...
 Financial Consultation. ...
 Employment Creation. ...
 Ensure Regional Balance.

International financial institutions help businesses?

  provide loans and equity investments to private sector companies, including
small and medium enterprises with growth potential, and mobilize financing from
other sources. We advise firms and the government on how to enhance
businesses' competitiveness.
Example of financial institution
 Types of financial institutions include: Banks. Credit unions. Community
development financial institutions.

Bretton Woods system 

The Bretton Woods system of monetary management established the rules for

commercial and financial relations among the United States, Canada, Western
European countries, Australia, and Japan after the 1944 Bretton Woods Agreement.
The Bretton Woods system was the first example of a fully negotiated monetary order
intended to govern monetary relations among independent states. The Bretton Woods
system required countries to guarantee convertibility of their currencies into U.S.
dollars to within 1% of fixed parity rates, with the dollar convertible to gold bullion for
foreign governments and central banks at US$35 per troy ounce of fine gold (or
0.88867 gram fine gold per dollar). It also envisioned greater cooperation among
countries in order to prevent future competitive devaluations, and thus established
the International Monetary Fund (IMF) to monitor exchange rates and lend reserve
currencies to nations with balance of payments deficits.
Preparing to rebuild the international economic system while World War II was still
being fought, 730 delegates from all 44 Allied nations gathered at the Mount
Washington Hotel in Bretton Woods, New Hampshire, United States, for the United
Nations Monetary and Financial Conference, also known as the Bretton Woods
Conference. The delegates deliberated from 1 to 22 July 1944, and signed the Bretton
Woods agreement on its final day. Setting up a system of rules, institutions, and
procedures to regulate the international monetary system, these accords established
the IMF and the International Bank for Reconstruction and Development (IBRD), which
today is part of the World Bank Group. The United States, which controlled two-thirds of
the world's gold, insisted that the Bretton Woods system rest on both gold and the US
dollar. Soviet representatives attended the conference but later declined to ratify the
final agreements, charging that the institutions they had created were "branches of Wall
Street".[2] These organizations became operational in 1945 after a sufficient number of
countries had ratified the agreement. According to Barry Eichengreen, the Bretton
Woods system operated successfully due to three factors: "low international capital
mobility, tight financial regulation, and the dominant economic and financial position of
the United States and the dollar.
On 15 August 1971, the United States terminated convertibility of the US dollar to gold,
effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat
currency.[4] Shortly thereafter, many fixed currencies (such as the pound sterling) also
became free-floating,[5] and the subsequent era has been characterized by floating
exchange rates.[6] The end of Bretton Woods was formally ratified by the Jamaica
Accords in 1976.

The General Agreement on Tariffs and Trade (GATT)?

The General Agreement on Tariffs and Trade (GATT), signed in 1947 by 23 countries,
is a treaty minimizing barriers to international trade by eliminating or reducing quotas,
tariffs, and subsidies. It was intended to boost economic recovery after World War II.1

GATT was expanded and refined over the years, leading to the creation in 1995 of
the World Trade Organization (WTO), which absorbed the organization created to
implement GATT. By then, 125 nations were signatories to its agreements, which
covered about 90% of global trade.

Understanding the General Agreement on Tariffs and Trade (GATT)

The GATT was created to form rules to end or restrict the most costly and undesirable
features of the prewar protectionist period, namely quantitative trade barriers such as
trade controls and quotas. The agreement also provided a system to arbitrate
commercial disputes among nations, and the framework enabled a number of
multilateral negotiations for the reduction of tariff barriers. The GATT was regarded as
a significant success in the postwar years.
One of the key achievements of the GATT was that of trade without discrimination.
Every signatory member of the GATT was to be treated as equal to any other. This is
known as the most-favored-nation principle , and it has been carried through into the
WTO. A practical outcome of this was that once a country had negotiated a tariff cut
with some other countries (usually its most important trading partners), this same cut
would automatically apply to all GATT signatories. Escape clauses did exist, whereby
countries could negotiate exceptions if their domestic producers would be particularly
harmed by tariff cuts.

Most nations adopted the most-favored-nation principle in setting tariffs, which largely
replaced quotas. Tariffs (preferable to quotas but still a trade barrier) were, in turn, cut
steadily in rounds of successive negotiations.

Why was the GATT replaced by the World Trade Organization (WTO)?

The GATT, though largely successful in its goal, was said to lack a coherent
institutional structure. In short, it was a legal agreement acting as an international
organization. The World Trade Organization (WTO) incorporates the principles of the
GATT and is better positioned to carry them out because, among other things, it is
better versed in issues like intellectual property, has a faster dispute settlement
system, and wields more power.

THE INTERNATIONAL MONETARY FUND (IMF) AND THE WORLD BANK

IMF and the world Bank were founded after the world war II. Their establishment
was mainly because of peace advocacy after the war. These institutions aimed to help
the economic stability of the world. Both of them are basically banks but instead of
being started by individuals like regular banks, they were started by countries. Most of
the world’s countries were members of the two institution. But, of course, the richest
countries were those who handled most of the financing and ultimately, those who had
the greatest influence.

IMF and the world Bank were designed to complement each other. The IMF’s
main goal was to help countries which were in trouble at that time and who could not
obtain money by any means. Perhaps, their economy collapsed or their currency was
threatened. IMF, in this case, served as a lender or a last resort for countries which
needed financial assistance. For instance, yemen loan 93 million dollar form IMF on
April 5, 2012 to address its struggle with terrorism. The World Bank, in comparison,
had a more long-term approach. Its main goals revolved around the eradication of
poverty and it funded specific projects that helped them reach their goals, especially in
poor countries. An example of such is their investment in education since 1962 in
developing nations like Bangladesh, Chad, and Afgahnistan.
 Unfortunately, the reputation of these institution has been dwindling, mainly due
to practices such as lending the corrupt government or even dictators and imposing
ineffective austerity measures to get their money back.

ACTIVITY: answer the questions in your note book to be submitted next

Tuesday. (April 25, 2023)

1. Why the role of financial institution is important in economy?

2. Why is understanding how financial institutions are managed important to your

life?

3. What were the key institutions and purposes of the Bretton Woods system at its
inception? How did they evolve during the post-war years? In what ways have
they become obsolete or counterproductive today?

END OF MODULE 4

CRESNA RAQUEL. LPT

instructor
[email protected]