Geopolitics

Chapter 1
 Geopolitics
The word geopolitics was originally coined by the Swedish
political scientist Rudolf Kjellén about the turn of the
20th century, and its use spread throughout Europe in
the period between World Wars I and II (1918–39) and
came into worldwide use during the latter.

Geopolitics is the interplay among geography, power,

politics, and international relations. Geopolitics brings
locational considerations, environmental contexts,
territorial perspectives, and spatial assumptions to the
fore
 Global Economy
• Geopolitics focuses on political power linked to
geographic space. In particular, territorial waters and
land territory in correlation with diplomatic history.

• Global economy is the exchange of goods and services

integrated into a huge single global market. It is virtually
a world without borders, inhabited by marketing
individuals and/or companies who have joined the
geographical world with the intent of conducting
research and development and making sales.
 Globalization
The term ‘Globalisation’ has been derived from the word
‘Globe’.
It conveys two meanings.

 First, to remove the hindrances like government permit,

licence, export, import, forcing capital etc. in case of
liberlaisation.

 Secondly, permission to be granted for the investment of

foreign capital in financial corporation or industries run by
government which will be privatised.
 Historical Aspects
• Birth of Capitalism
• Capitalism and Colonization
• World war I to World War II
• Post-World War II
• De-colonization
• Privatization
• Global Political System
• Global Trade Origine
 Development of Global Economy:

• The development of global economy passed through

several stages. In 1944 in the ‘Brettonwoods Conference’,
the representatives of 44 countries decided to form
‘International Bank for Reconstruction and Development
(IBRD) and ‘International Monetary Fund’ (IMF). This plan
was also materialised.

• In 1948 when ‘General Agreement on Tariff and Trade’

(GATT) was made. In 1956 ‘International Finance
Corporation’ (IFC) was formed. In 1960 the ‘International
Development Association’ (IDA) was formed. In 1995 GATT
was given a new name as ‘World Trade Organisation’
(WTO) which galvanised the global economy.
 Components of Global Economy
• Trade Agreements - Bilateral, regional or multilateral economic
arrangements designed to reduce or eliminate trade barriers.
• Capital Flow - Measurement of an increase or decrease in a
nation’s domestic or foreign assets.
• Migration Patterns - Impact of labor market fluidity on
production costs through the loss (emigration) or gain
(immigration) of potential workers, especially those with
particular skills.
• Information Transfer - Communication trends that help mitigate
the asymmetric functioning of markets and economies.
• Spread of Technology - Rapid dispersion of the means and
methods of producing goods and services
 Theory of Hegmonic Stability
• Central Idea: The stability of the International System
requires a single dominant state to articulate and enforce
the rules of interaction among the most important
members of the system.

• To be a Hegemon, a state must have three attributes:

– The Capability to enforce the rules of the system;
– The Will to do so;
– A Commitment to a system which is perceived as mutually
beneficial to the major states.
• Capability rests upon three attributes:
– A large, growing economy;
– Dominance in a leading technological or economic sector;
– Political power backed up by projective military power.
 Hegemony
• International economic management relied on the
dominant power to lead the system. The
concentration of power facilitated management by
confining the number of actors whose agreement
was necessary to establish rules, institutions, and
procedures and to carry out management within the
agreed system.
 The Historical Record
• Portugal 1494 to 1580 (end of Italian Wars to Spanish invasion of Portugal)
Based on Portugal's dominance in navigation
– Hegemonic pretender: Spain
• Holland 1580 to 1688 (1579 Treaty of Utrecht marks the foundation of the
Dutch Republic to William of Orange's arrival in England) Based on Dutch
control of credit and money
– Hegemonic pretender: England
• Britain 1688 to 1792 (Glorious Revolution to Napoleonic Wars) Based on
British textiles and command of the High Seas
– Hegemonic pretender: France
• Britain 1815 to 1914 (Congress of Vienna to World War I) Based on British
industrial supremacy and railroads
– Hegemonic pretender: Germany
• United States 1945 to 1971 Based on Petroleum and the Internal
Combustion Engine
– Hegemonic pretender: the USSR
 What does the Hegemon Do?
• The system is a collective good which means that it is plagued by a "free
rider" syndrome. Thus, the hegemon must induce or coerce other states
to support the system The US system tries to produce democracy and
capitalism, thus it champions human rights and free trade. Other nations
will try to enjoy the benefits of these institutions, but will try to avoid
paying the costs of producing them. Thus, the US must remain committed
to free trade even if its major trading partners erect barriers to trade. The
US can erect its own barriers, but then the system will collapse.

• Over time, there is an uneven growth of power within the system as new
technologies and methods are developed. An unstable system will result if
economic, technological, and other changes erode the international
hierarchy and undermine the position of the dominant state. Pretenders
to hegemonic control will emerge if the benefits of the system are viewed
as unacceptably unfair.
 Capitalism
• Capitalism, economic system in which private individuals
and business firms carry on the production and
exchange of goods and services through a complex
network of prices and Markets.

• The term capitalism was first introduced in the mid-19th

century by Karl Marx, the founder of communism. Free
enterprise and market system are terms also frequently
employed to describe modern non-Communist
economies. Sometimes the term mixed economy is used
to designate the kind of economic system most often
found inWestern nations.
 Market-Oriented Capitalism
• A market-oriented capitalism is organized so
that companies, prices, and production are
controlled naturally by the demand for goods
and services rather than by government: A
market-oriented economy may offer an
uncertain future.

Examples ????
 Developmental state Capitalism
• Developmental state, or hard state, is a term used by
international political economy scholars to refer to the
phenomenon of state-led macroeconomic planning. In
this model of capitalism (sometimes referred to as state
development capitalism), the state has more
independent, or autonomous, political power, as well as
more control over the economy. A developmental state
is characterized by having strong state intervention, as
well as extensive regulation and planning.

• Examples - East and Southeast Asia

 Social Market Capitalism
• The social market economy also called Rhine
capitalism, is a socioeconomic model
combining a free market capitalist economic
system alongside social policies that establish
both fair competition within the market and a
welfare state. It is sometimes classified as a
coordinated market economy…..
 Social Market Capitalism
• It is not socialism, and it is not capitalism. It is not
charity nor is it philanthropy. It is about directing
capital towards the common benefit via markets as
individuals and collectives.

• It is about solving social issues and making a profit,

and has an ideology of liberty, equality, and justice.

Example????
 Comparative Economic Systems
• Comparative Economic Systems is the sub-
field of economics dealing with the
comparative study of different systems of
economic organization, such as capitalism,
socialism, feudalism and the mixed economy.
It is widely held have been founded by the
economist Calvin Bryce Hoover….
Globalization
 Chapter 2

The Trade System

 Free Trade
• Free trade is a largely theoretical policy under
which governments impose absolutely no
tariffs, taxes, or duties on imports, or quotas
on exports. In this sense, free trade is the
opposite of protectionism, a defensive trade
policy intended to eliminate the possibility of
foreign competition
 GATT

• GATT was beginning of large-scale multilateral

trade negotiations
• First “round” in 1947 in Geneva - Eight rounds
altogether through 1993
 GATT

• Five Key Principles in GATT:

1. trade barriers should be lowered in general and
quotas should be eliminated
2. trade barriers should be applied on MFN basis –
no discrimination among trading partners
3. national treatment – imported goods treated
same as domestic goods
 GATT

• Five Key Principles in GATT

4. tariff concessions, once made, cannot be
rescinded without compensating trade partners,
and new barriers cannot be erected in place of
lowered tariffs
5. trade disputes to be settled by consultation
 GATT

Major GATT Negotiating Rounds

• First Round, Geneva, 1947, 21% Average Cut in
Tariffs
• Kennedy (6th) Round, Geneva, 1964-67, 36%
Average Cut in Tariffs
• Tokyo (7th) Round, Geneva, 1974-79, 30%
Average Cut in Tariffs
• Uruguay (8th) Round, Geneva, 1986-93, 33%
Average Cut in Tariffs
 Uruguay Round, 1986-93

• Over 100 Nations Participated

• Very Contentious Because Issues Went Far
Beyond Tariff Reduction
– Nontariff Barriers, Intellectual Property Rights,
Services Trade, Agriculture Polices, Improving How
GATT Functions
• Created WTO as successor to GATT, beginning
in 1995
 WTO
The WTO is a rules-based, member-driven organization — all
decisions are made by the member governments, and the rules
are the outcome of negotiations among members.

The World Trade Organization (WTO) is an organization

that intends to supervise and liberalize international trade.

WTO deals with regulation of trade between participating

countries; it provides a framework for negotiating and
formalizing trade agreements, and a dispute resolution process
aimed at enforcing participants' adherence to WTO agreements.
 Facts About WTO
Location: Geneva, Switzerland

Established: 1 January 1995

Created by: Uruguay Round negotiations (1986-93)

Membership: 164 members since 29 July 2016 , with dates of

WTO membership

Secretariat staff: 639

Head: Roberto Azevêdo of Brazil (Director-General)

 Principles
 To promote fair competition

 To encourage economic and development reforms

 To increase predictability through transparency

 To lower trade barriers for freer trade

 To ensure fair treatment to locals and foreigners

 Objectives
 Rejecting all forms of protectionism, MFN.
 Removing trade barriers and eliminating discriminatory
treatment in international trade through successive multilateral
trade negotiations.
 Providing a fair, predictable and open rule-based trading
system through overseeing the implementation of multilateral
trade rules and enforcing legally binding obligations.
 Providing a mechanism for settling trade disputes.
 Integrates developing and least developed economies into the
world trading system.
 Encouraging national treatment.
 Functions
 Administering WTO trade agreements:- The main faction
of WTO is to monitor or administer all the trade agreement
signed by member nations.

 Forum for trade negotiations:- WTO is a forum for trade

negotiation of the member nations.

 Handling trade disputes:- WTO also take care of the disputes

arise in trade among the nations.

 Monitoring national trade policies:- WTO also monitors the

govt. policy of the countries made for foreign trade.
 Technical assistance and training for developing
countries:- WTO helps member nations in providing them
the technical assistance about the new or existed
technology.

 Cooperation with other international organizations:-

WTO also cooperates with other international
organizations in order help other nations.
 Difference Between GATT & W.T.O.
GATT WTO
IT was a multilateral agreement , It is a permanent institution,
designed to attempt to establish established to serve its own purpose
international trade
It was ad hoc and provisional It is permanent organization

Its rules were applicable to trade in Its rules are applicable for
merchandise goods merchandise trade, services, IPR etc.

GATT has contracting parties WTO has members

GATT allowed existing domestic WTO does permit this

legislation to continue even if it
violated a GATT agreement
Dispute settlement was slow and less Dispute settlement is more powerful,
efficient, its rules could be easily fast and efficient. Its rules are
blocked difficult to block.
 Trade Blocs
• A regional trading bloc is a group of countries within a geographical
region that protect themselves from imports from non-members.
Trading blocs are a form of economic integration, and increasingly
shape the pattern of world trade. There are several types of trading
bloc:

• Preferential Trade Area -

• Free trade areas – elimination of tariffs between economies in the
trading block
• Customs union – free trade area + a common external tariff with
non-members
• Economic union/Single market – Customs union + common rules
and regulations.
 Advantages of trading blocks
• Tariff removal leads to trade creation – lower prices for consumers and
greater opportunity for exporters.
• Increased trade enables increased specialisation – which gives benefits
of economies of scale (lower average costs from increased output)
• Catch-up effects. Countries joining a rich trading block can benefit
from inward investment and increased trade opportunities. Countries
in Eastern Europe have made considerable progress in catching up with
average income levels in Western Europe.
• Gravity theory of trade suggests that trade with countries in close
proximity is the most important due to lower transport and similar
cultural and economic ties.
• Gives small countries a greater say in global trade agreements
• Increased competition. The removal of tariffs creates greater choice for
consumers. Therefore domestic firms have a greater incentive to cut
costs to remain competitive.
 Disadvantages of trading blocks
• Joining a customs union may lead to increased import tariffs – which leads to
trade diversion. For example, when the UK joined the EEC customs union, it
required higher import tariffs on imports from former Commonwealth
countries. This led to switch in demand towards higher-cost European
countries and caused loss of business for Commonwealth countries
• Increased interdependence on economic performance in other countries in
trading block. If Eurozone goes into recession, it will affect all countries in the
Eurozone. However, this is almost inevitable even if countries are not formally
in a trading block due to a close relationship between trade cycles in different
countries.
• Loss of sovereignty and independence. A trading block needs to make
decisions for the whole area. This may go counter to the particular wishes of
a country.
• Increased influence of multinationals. In a bilateral deal between the US and
South-East Asian trading block. Free trade may come at the price of allowing
free movement of capital. This can have benefits in terms of inward
investment. But, can also have costs for higher-cost domestic producers. Free
trade can lead to structural unemployment as resources shift from
uncompetitive industries to newer industries.
 Different Trade Block
• EU – 27 Nations
• OECD – 36 Nations
• OPEC – 14 Members
• SAARC – 8 Members
• ASEAN – 10 Members
• NAFTA – 3 Members
 International Trade Theory
• Adam Smith – Absolute Cost Advantage
• David Recardo – Comparative Cost Advantage
• Heckscher-Ohlin – Factor Endowment Theory
 Bi- Lateral & Multilateral Agreements
• The main difference between multilateral and
bilateral free trade agreements (FTA) is the
number of participants. Multilateral trade
agreements involve three or more countries
without discrimination between those
involved, whereas bilateral trade agreements
consist between two countries..
 Trade War
• A trade war happens when one country
retaliates against another by raising import
tariffs or placing other restrictions on the
opposing country's imports.

• Trade wars are a side effect of protectionism,

which are government actions and policies
that restrict international trade.
Impact of Trade War

?????
 Chapter 3

International Trade Laws

 International Trade Law

• International trade law is the set of laws and

agreements that govern commerce between
countries. International trade laws create the
rules that countries and businesses must
follow in order to do business across borders
 International sales contract

• An agreement between a seller and a buyer for the sale

of goods. The contract should, at a minimum, identify
the seller and buyer, the quantity and type of product,
delivery time, price and conditions of payment.

• In addition, a well-constructed international sales

contract will reference the governing body of law, the
forum where any disputes are to be resolved and the
method of dispute resolution, such as arbitration as
opposed to litigation.
 Patent
• A patent is a form of intellectual property that
gives its owner the legal right to exclude
others from making, using, selling and
importing an invention for a limited period of
years, in exchange for publishing an enabling
public disclosure of the invention.
 Neighbouring rights
Neighbouring rights are a form of copyright linked
to commercially released recordings. When a
record is played on radio, TV or performed in public
(for instance in bars, restaurants and shops) a
royalty, or remuneration as it is called in the
neighbouring rights world, is due both to the
owner of the master recording (typically a record
label) and the performing artist. Performing artists
includes singers, instrumentalists and, if they play
on the track, studio producers.
 WTO Dispute Settlement

Approximate periods for each stage of dispute settlement:-

First Stage:- Director- general of WTO tries to settle dispute

between countries by consultation. UP to 60 days.

Second Stage:- If Consultation fails, the complaining country can

ask for a panel to be appointed. 45 days for panel appointing and 6
moths to report submission.

Third Stage:- Final report submission to WTO members within 3

weeks.
Fourth Stage:- Dispute settlement body finally adopts the report
and recommends within 60 days.

Fifth Stage:- Both the parties can appeal against settlement

body’s consensus within 60 days or it can be extended to 90
days.

Sixth Stage: WTO settlement body adopts appeals report in 30

days..

Dispute Settlement:-
Without Appeal:- Approximate 1 year
With Appeal:- Approximate 1 year 3 months
 Dispute Case- DS380

Key facts

 Complainant: European Communities

 Respondent: India
 Agreements cited:
(as cited in request for consultations)
 Subsidies and Countervailing Measures: Art. 3.1(b), 3.2, 4.2
GATT 1994: Art. III:2, III:4
 Request for Consultations received: 22 September 2008
 Dispute:- Discriminatory taxation policy by Indian States.
 Benefits

1. The system helps promote peace

2. Disputes are handled constructively

3. Rules make life easier for all

4. Freer trade cuts the costs of living

5. It provides more choice of products and qualities

 International Labor Organization
• The ILO was founded in 1919, in the wake of a destructive
war, to pursue a vision based on the premise that universal,
lasting peace can be established only if it is based upon decent
treatment of working people. The ILO became the first
specialized agency of the UN in 1946. It has its headquarter in
Geneva.

• The ILO is the global body responsible for drawing up and

overseeing international labour standards. Working with its
Member States, the ILO seeks to ensure that labour standards
are respected in practice as well as principle
 Objectives

The four strategic objectives:-

 Promote and realize standards and fundamental principles and
rights at work
 Create greater opportunities for women and men to secure
decent employment and income
 Enhance the coverage and effectiveness of social protection
for all
 Strengthen tripartism and social dialogue
 The Governing Body

• 28 government members, who are elected at the Conference

every three years, taking into account geographical distribution.
• 14 employer members who are elected by employers.
• 14 worker members who are elected by workers.
• States of chief industrial importance permanently hold ten of the
government seats from Brazil, China, France, Germany, India,
Italy, Japan, the Russian Federation, the United Kingdom, and
the United States.
• The Governing Body is the executive council of the ILO and
meets three times a year in Geneva.
• It submits its report to the Conference for adoption.
• It also elects the Director-General.
• Members of the ILO are 183 of the UN members.
 What it does?
The ILO promotes the development of independent employers and
workers organizations and provides relevant training and advisory
services as:-

• Vocational training and vocational rehabilitation

• Employment policy
• Labour administration
• Labour law and industrial relations
• Working conditions
• Management development
• Cooperatives
• Social security
• Labour statistics
• Occupational safety and health
• In addition, the work of the ILO involves a number of cross-cutting
International Labour Office & Conference
 The International Labour Office is the permanent secretariat of
the International Labour Organization.
 It is under the leadership of a Director-General, who is elected
for a five-year renewable term.
 The Office employs some 1,900 officials of over 110
nationalities at the Geneva headquarters.
 It has 40 field offices around the world.
 600 experts undertake missions in all regions of the world
under the programe of technical cooperation.
 The member States of the ILO meet at the International
Labour Conference in June of each year, in Geneva. Two
government delegates, an employer delegate and a worker
delegate represent each Member State.
International Arbitration
 International Arbitration
Arbitration:- It a form of alternative dispute resolution (ADR), is a
legal technique for the resolution of disputes outside the courts,
wherein the parties to a dispute refer it to one or more persons (the
"arbitrators", "arbiters" or "arbitral tribunal"), by whose decision they
agree to be bound. It is a settlement technique in which a third party
reviews the case and imposes a decision that is legally binding for
both sides.

International Arbitration:- International arbitration is a leading

method for resolving disputes arising from international commercial
agreements and other international relationships.

The practice of international arbitration has developed so as to allow

parties from different legal and cultural backgrounds to resolve their
disputes, generally without the formalities of their respective legal
systems.
 Main Features
Main features of International Arbitration:-

 Desire to avoid the uncertainties and local practices

associated with litigation in national courts,
 The desire to obtain a quicker, more efficient decision,
 The relative enforceability of arbitration agreements and
arbitral awards (as contrasted with forum selection
clauses and national court judgments),
 The commercial expertise of arbitrators,
 The parties' freedom to select and design the arbitral
procedures,
 confidentiality and other benefits.
 Advantages of IA
 Neutrality and Enforceability of Arbitration Awards:- The
ability to resolve disputes in a neutral forum and the
enforceability of binding decisions are often cited as the main
advantages of international arbitration over the resolution of
disputes in domestic courts.

 No Partiality:- The concerning third party listen the

arguments of both the parties and also look at the facts before
decision.

 All the parties can decide their place:- All the disputed
parties can decide the third country, neutral country for the
dispute arbitration .
 Chapter 4

International Monetary System

 International financial system
• The global financial system is the worldwide framework
of legal agreements, institutions, and both formal and
informal economic actors that together facilitate
international flows of financial capital for purposes of
investment and trade financing.
 International Monetary Reforms
• Monetary reform is any movement or theory that proposes
a system of Supplying money and financing the economy
that is different from the current system.

• Monetary reform is accounting reform that reaches more

deeply into banking central bank, money supply and
monetary policy. It affects how money is created and
destroyed, and what constitutes a reliable measure of
economic growth and measures of national income.
 The Bretton Wood System
• The Bretton Woods Agreement was negotiated in July 1944
by delegates from 44 countries at the United Nations
Monetary and Financial Conference held in Bretton Woods,
New Hampshire. Thus, the name “Bretton Woods Agreement.

• Under the Bretton Woods System, gold was the basis for the
U.S. dollar and other currencies were pegged to the U.S.
dollar’s value. The Bretton Woods System effectively came to
an end in the early 1970s when President Richard M. Nixon
announced that the U.S. would no longer exchange gold for
U.S. currency
 Currency & Gold Pegging
• The exchange rate applied at the time set
the price of gold at $35 an ounce
 Bretton Wood & IMF
• The IMF came into formal existence in December 1945, when its first 29
member countries signed its Articles of Agreement. It began operations on
March 1, 1947. Later that year, France became the first country to borrow from
the IMF.

Par value system

• The countries that joined the IMF between 1945 and 1971 agreed to keep
their exchange rates (the value of their currencies in terms of the U.S. dollar
and, in the case of the United States, the value of the dollar in terms of gold)
pegged at rates that could be adjusted only to correct a "fundamental
disequilibrium" in the balance of payments, and only with the IMF's
agreement. This par value system—also known as the Bretton Woods system—
prevailed until 1971, when the U.S. government suspended the convertibility
of the dollar (and dollar reserves held by other governments) into gold.

• IMF was expected to perform 3 functions (1) Regulatory (2) Financial and (3)
Consultative.
 End of Bretton Woods system

• The system dissolved between 1968 and 1973. In

August 1971, U.S. President Richard Nixon
announced the "temporary" suspension of the
dollar's convertibility into gold. While the dollar
had struggled throughout most of the 1960s within
the parity established at Bretton Woods, this crisis
marked the breakdown of the system. An attempt
to revive the fixed exchange rates failed, and by
March 1973 the major currencies began to float
against each other.
 Financial Regulations
• It is a form of regulation or supervision, which
subjects financial institutions to certain
requirements, restrictions and guidelines,
aiming to maintain the stability and integrity
of the financial system.
 Objectives
The objectives of financial regulators are usually:

• market confidence – to maintain confidence in

the financial system
• financial stability – contributing to the protection
and enhancement of stability of the financial
system
• consumer protection – securing the appropriate
degree of protection for consumers.
 International Regulator
At the international level, there is the

• International Organization of Securities

Commissions (IOSCO),
• International Association of Insurance Supervisors,
• Basel Committee on Banking Supervision,
• Joint Forum, and the Financial Stability Board,
where national authorities set standards through
consensus-based decision-making processes
 Developing Countries’ Concern
• Poverty,
• political and social problems
• old transport systems,
• imported hazards from industrialized countries
• lack of information
• weak health care systems
• Lack of financial structure
• Crime & Corruption
 Exchange Rate Mechanism
• The rate at which one unit of currency is converted into the currency unit of
another country is known as the rate of exchange.

• In other words the rate at which one currency exchanges for another
currency is called the rate of exchange.

• Hence, the rate of exchange for India is nothing but the price of foreign
currency expressed in terms of Indian currency.

USD/INR – 74.4580/74.4590

GBP/USD = 1.15
 India & Forax
• 1947- 1971 Par Value system of exchange rate. Rupee’s external par value was
fixed in terms of gold with the pound sterling as the intervention currency.
• 1971 Breakdown of the Bretton-Woods system and floatation of major
currencies. Rupee was linked to the pound sterling in December 1971.
• 1975 To ensure stability of the Rupee, and avoid the weaknesses associated with
a single currency peg, the Rupee was pegged to a basket of currencies. Currency
selection and weight assignment was left to the discretion of the RBI and not
publicly announced.
• 1990- 1991 Balance of Payments crisis
• July 1991 To stabilize the foreign exchange market, a two step downward
exchange rate adjustment was done (9% and 11%). This was a decisive end to the
pegged exchange rate regime.
• March 1992 To ease the transition to a market determined exchange rate system,
the Liberalized Exchange Rate Management System (LERMS) was put in place,
which used a dual exchange rate system. This was mostly a transitional system.
• March 1993 The dual rates converged, and the market determined exchange rate
regime was introduced. All foreign exchange receipts could now be converted at
market determined exchange rates.
 Exchange Rate Policies
• There are two ways the price of a currency can
be determined against another. They are
basically:
• 1. Fixed Exchange Rate Policy
• 2. Freely floating Exchange Rate Policy
• Fixed Exchange Rate Policy • A fixed exchange rate is a
country's exchange rate regime under which the
government or central bank ties the official exchange
rate to another country's currency (or the price of gold).

• Freely floating Exchange Rate Policy • A floating

exchange rate is determined by the private market
through supply and demand. • A floating rate is often
termed "self-correcting," as any differences in supply
and demand will automatically be corrected in the
market
 RBI’s Role
• DIRECT INTERVENTION It refers to purchases
and sales in international currency (i.e. US
dollars and euro) both on the spot and also in
forward markets.

• INDIRECT INTERVENTION It refers to the use of

reserve requirements and interest rate flexibility
to smoothen temporary mismatches between
demand and supply of foreign currency.
Objective of Exchange Rate Policy of RBI

• To promote exports
• To Secure favorable terms of trade
• To protect rupee from fluctuations in the value
of foreign currencies.
• To attain plan targets in the sphere of foreign
trade
 Exercise

• Appreciation of Currency
• Depreciation of Currency
 Chapter 5

Challenges in Global Economic

Environment
Globalization

?
Advantages & Disadvantages

?
Impact on India

?
 Globalization in Reverse Gear
• Sluggish Economic Growth Rate
• High Unemployment
• Economic Turbulence
• Trade Figures
• Peer Effect
Re Emergence of Protectionism
 Eurozone Crisis
• The European debt crisis, often also referred to as
the eurozone crisis or the European sovereign debt
crisis, is a multi-year debt crisis that has been taking
place in the European Union (EU) since the end of 2009.
Several eurozone member states
(Greece, Portugal, Ireland, Spain, and Cyprus) were
unable to repay or refinance their government debt or
to bail out over-indebted banks under their national
supervision without the assistance of third parties like
other eurozone countries, the European Central
Bank (ECB), or the International Monetary Fund (IMF).
Eurozone Crisis
 Brexit
• Brexit ("British exit") was the withdrawal of
the United Kingdom (UK) from the European
Union (EU) at 23:00 31 January
2020 GMT (00:00 CET).

• The UK is the first and so far only country to have

left the EU, after 47 years of having been
a member state of the EU and its predecessor,
the European Communities (EC), since 1 January
1973.
 Impact of following

• World recession,
• Inflationary trends,
• Impact of fluctuating prices of crude oil, gold
 End of Syllabus

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