Read the excerpt below from Wall Street journal (9/6/02):

…Late yesterday in New York, the euro was trading around 99.32 cents, up from 99.15 cents late Wednesday but well off its high of 99.89 cents earlier yesterday. Against the yen, the dollar was worth 118.24 yen late yesterday, up from 118.00 yen Wednesday. In trading against the Swiss franc, the dollar was valued at 1.4707 francs yesterday, down from 1.4760 francs, while the British pound was worth $1.5675, up from $1.5643 Wednesday.

Qs: 1. Is the exchange rate quote for the U.S. dollar a direct or indirect quote

on the (a) yen? (b) euro? (c) Swiss franc? (d) sterling (British pound)?2. (a) From Wednesday to Thursday, what percentage change in the

value of the dollar occurred against the yen? (b) sterling (Remember to mind your quoted and base currencies!)

3. Using the euro as the base currency, what is Thursday’s cross rate between the yen and euro?

4. Using sterling as the base currency, what is Thursday’s cross rate between the Swiss franc and sterling?

RegionalRegionalEconomicEconomic

IntegrationIntegration

RegionalRegionalEconomicEconomic

IntegrationIntegration

Free Trade AreaFree Trade Area

Customs UnionCustoms Union

Common MarketCommon Market

Economic UnionEconomic Union

Political UnionPolitical Union

Major Regional Trading Groups

Economic IntegrationEuropean Union

Free Trade AreasEuropean Free Trade AssociationCentral European Free Trade AgreementNorth American Free Trade AgreementAssociation of South East Asian Nations

Customs UnionMERCOSUR

Common MarketCaribbean Community and Common MarketCentral American Common MarketAndean Group

Greater Economic Integration

Benefits of Regional Benefits of Regional Economic IntegrationEconomic Integration

Drawbacks of Regional Drawbacks of Regional Economic IntegrationEconomic Integration

SingleSingleEuropean ActEuropean Act

SingleSingleEuropean ActEuropean Act

EuropeanEuropeanCoal and SteelCoal and Steel

CommunityCommunity

EuropeanEuropeanCoal and SteelCoal and Steel

CommunityCommunity

MaastrichtMaastrichtTreatyTreaty

Integration in EuropeIntegration in EuropeIntegration in EuropeIntegration in Europe

EuropeanEuropeanEconomicEconomic

CommunityCommunity

Structure of the European Union

EuropeanEuropeanParliamentParliament

EuropeanEuropeanCommissionCommission

CouncilCouncilof Ministersof Ministers

EuropeanEuropeanCouncilCouncil

CourtCourtof Justiceof Justice

North American Free North American Free Trade Agreement (NAFTA)Trade Agreement (NAFTA)

United States - CanadaUnited States - CanadaFree Trade AgreementFree Trade Agreement

Integration in Integration in North AmericaNorth America

Integration inIntegration inLatin AmericaLatin America

Latin AmericanLatin AmericanFree TradeFree Trade

Association (LAFTA) Association (LAFTA)

SouthernSouthernCommon MarketCommon Market

(MERCOSUR) (MERCOSUR)

Latin AmericanLatin AmericanIntegrationIntegration

Association (ALADI) Association (ALADI)

The AndeanThe AndeanCommunity PactCommunity Pact

Central AmericaCentral Americaand the Caribbeanand the Caribbean

CaribbeanCaribbean

CommunityCommunity

and the Common and the Common

Market (CARICOM)Market (CARICOM)

CentralCentral

AmericanAmerican

Common MarketCommon Market

(CACM)(CACM)

Free TradeFree TradeArea of theArea of the

Americas (FTAA)Americas (FTAA)

TransatlanticTransatlanticEconomicEconomic

Partnership (TEP) Partnership (TEP)

Proposed TradeProposed TradeAgreements Agreements

Integration in AsiaIntegration in Asia

AssociationAssociationof Southeastof Southeast

Asian Nations Asian Nations (ASEAN)(ASEAN)

Asia PacificAsia PacificEconomicEconomic

Cooperation Cooperation (APEC) (APEC)

Integration in the Integration in the Middle East and Middle East and

AfricaAfrica

Gulf Gulf

CooperationCooperation

Council (GCC)Council (GCC)

EconomicEconomic

Community ofCommunity of

West African West African

States (ECOWAS)States (ECOWAS)

General Agreement on Tariffs and Trade (GATT)Created in 1947 by 23 countries

• Intended to negotiate reductions in trade restrictions and develop common procedures for handling imports and exports

• Efforts led to a number of multilateral reductions in tariffs and nontariff barriers for member countries

– across-the-board reductions– each country negotiated exceptions to its

reductions• Codes of conduct developed in each of five

areasInherent weakness of GATT

• Cumbersome negotiations• Most-favored nation— trade concessions

applied to all trading partners• No mechanism to assure compliance with

negotiated agreements

World Trade Organization (WTO)Created in 1995 to replace GATTNegotiating process

• Ongoing negotiations about – restrictions on trade in services– nontariff barriers to trade– protection of intellectual-property rights– investment policies that affect trade

Granting of normal trade relations • Apply to WTO members• Eliminates the free-rider complaint raised during

GATT negotiations• Certain exceptions recognized

Settlement of disputes• Clearly defined settlement mechanism• Sanctions may be applied to countries not

complying with rulings

Dealing with Governmental Trade InfluencesWhen faced with import competition, companies may

• Move production to a lower-cost country• Concentrate on market niches in which there is

less international competition• Effect internal adjustments

Companies may require assistance of government to limit imports or open foreign markets• Governments deny some requests for assistance

companies attitudes differ toward protectionism• Companies likely to lose from protectionism

– those that depend heavily on trade– those that have integrated production in

different global locations• Companies likely to gain from protectionism have

single or multidomestic production facilities