Video Transcript: Lecture 8

Welcome to lecture number eight. So we are moving right along, and this is a  shorter lecture. We have been talking about economic forces, and this is kind of  a continuation of lecture number seven, but I've decided to separate them a little bit. But this one is talking about the monetary system and financial forces. So  again, these are complex topics, because, as we talked about operating in an  international market is complex, and there's a lot of complexity that is around  that. So let's talk about the monetary system. Let's talk about a brief history we  mentioned in an earlier lecture. We talked about mercantilism, which talked  about gold and precious metals. And you, many of you probably have heard of  the gold standard, which is a very simple standard. If you have it in gold, then  you can spend it. And then the United States, we used to keep our gold reserves in Fort Knox, which I believe is in Kentucky, and we kept them at a few other  places as well. This system led to what was called the Bretton Woods standard  system, where there were fixed exchange rates and systems with the US Dollar  as the standard. So that system used the US Dollar as the standard for  currency. And now, now our system is, well, it's complex, right? Like everything  else we've talked about, this system just is very, very, very complex. So the  system, the value of the currency is is pegged to other currency, and that is  related to the International Monetary Fund. So in this system, the gold standard  doesn't exist anymore, and the currency value fluctuates and can be  manipulated by the amount of money in the system. So I remember when I was  growing up, I remember pictures of other countries where there were  wheelbarrows of money, and people would take those wheelbarrows of money  to buy some bread. Obviously, there was a lot of currency in that system, and  then once you retract that, then the value of currency changes, and then things  become more valuable. So if you think about the system today, as I said, it's  really, really complex. There are many, many factors that contribute to exchange rate movement. Those include things like supply and demand. They include  things like inflation. They include things like political situation, the government's  monetary policy, the balance of payments, how much debt a country has, and  other factors which impact the currency. So to give a relatively recent example,  conflict can lower currency as well. So if you remember when, when the United  States invaded Iraq, the conflict tanked the value of the currency of the Iraqi  dollar, dinor, I believe it's what it's called. So that had a major impact on Iraqi  currency and the regional stability, which also affected the currency in the  region, and it had long, lasting impact. So on the international business level,  remember, stability is what is always wanted, but one needs to do a bit of  exchange rate forecasting. So if you purchase equipment or supplies when the  exchange rates are favorable, then that's going to be more money for you. If you purchase them when, when the exchange rates are not favorable, then you're  going to lose money. So you always try to pay that balancing act of when to  purchase, when to hold, what to do. And exchange rates is another thing that 

you have to consider with an international company. So again, I said this, that  people, people get nervous when the exchange rates change and when there's  conflict and things that affect the stability of the currency, because companies  like stability. Yeah, yeah. So when thinking about foreign countries or the country you live in, for that matter, remember that governments can exert several  financial forces. So governments control currency exchange and other currency  within their borders. So I mentioned in previous lectures that I'm going to be  going to Nepal. Nepal has a closed system, so I cannot purchase or exchange  currency ahead of them. So for instance, if I could, let's say I'm going there in in  a few months, let's say that I knew that I can buy currency now, when the rates  were low, but I knew that Nepal was about to, you know, transform the industry  with an invention, and the standard of living was going to go up significantly,  which would affect the currency. Then I would want to buy now, instead of  waiting until then, because I would lose money. So that's an example of  currency. And because Nepal is a closed system, because they do not allow you to purchase currency, except in country, I'm kind of at the mercy of whatever the  exchange rate is when I my plane lands in Nepal. So let's see. So another thing  is, you could, you could move to a lower tax environment. So that's another way  you can manipulate currency. So if you want to spur people to spend money,  then you lower taxes and you provide incentive for people to spend money. You  can, you can you can move to that lower tax environment, and then, as you  raise, you can also do things like you can raise the borrow rate. So right now, in  the US, or, you know, whenever you watch this lecture, there are times in the US when, when the rate to borrow money is 0% and if it's 0% then obviously that's  gonna encourage people to borrow money and to spend money and to do things like that. As you raise, then you then you discourage people from spending  money, because nobody wants a 10% loan on a car when they can get a 0%  loan on a car, right? So that encourages behavior of borrowing and spending,  and that affects inflation and the number and the level of currency that's within  the market. So hope that makes sense, trying to make it as simple as possible.  So one of the things to keep in mind is you're gonna hear this term balance of  payments, and that is a record of a country's transactions with the rest of the  world. So it flows, flows with the capital of the country. So it uses what's called a  double entry bookkeeping form with an international exchange record as both a  debit, so the money going out and a credit the money coming in. So that's a  that's a complex concept, but ensures that the imports and exports or the flow of funds is accounted for properly. So to do this, there are three major accounts.  There's the current accounts, which tracks the goods, services, gifts and aid.  There's a capital account which tracks the financial assets and line abilities.  There's and that also does direct investments, capital flows, things that are like.  Then there's the reserves which are tracking the gold imports and exports. So  looking at the balance of payments, you can look at the current account deficit 

as a way to measure economic problems or demand and increase the outward  flow. So if you think about this in your own life, if if if you continue to spend more than you make, and you show that on your books, then eventually that's going to catch up with you. But, but understanding that concept, you need to look at the  total picture as well. For example, a new business that starts out will be showing a deficit for several months before they start to make money. So they may be an economically healthy company. They just need to spend a little bit up front, and  then they eventually start making money. So same thing works on the world  stage as well and with international business. So that is it. So this is a very short lecture. As I said, this lecture is really a continuation of lecture seven. And so I  just wanted to explain a little bit of international monetary policy. But what I did  want to spend some time talking about is Ali Alibaba which is an international  company, and it was formed by Jack mom. So before I get into Alibaba, Jack Ma was an English teacher, and he was making $12 a month. Now he's worth $25  billion so he started Alibaba and Alipay, which is for those United States, kind of  like Amazon and PayPal, and he did it because he wanted to raise China's  profile on the world stage and internet. So for those of you that have never  looked at Alibaba or not familiar with Jack Ma, I can I encourage you, I really  encourage you to spend some time looking him up and kind of reading his story.  But I'm going to show you his picture before we go into Alibaba. So here is here  is Jack Ma. And now we will go to Alibaba. So Alibaba, as you can see, you can  just say what you looking for, you know, maybe you want a bushing or a bearing, and then you can go and you can buy a bushing or bearing, and you can start  your order. So very similar to Amazon, so some interesting things is, obviously,  you can see, it's an international company, certainly operates all over the world.  And let's, let's look at some of the countries that do business here, so you can  see some of the countries that are part of it. One of the interesting things is, you  know, certainly they call out their partnerships a little bit different than Amazon  does. If you go on Amazon site, they call out their partnerships a little bit  differently. So they are very, very, very, very good about saying the countries that they operate with and where you can get your products from, and this is truly  one of the largest international companies in the world, led by this man, Jack Ma who, at incidentally, only owns 7% of Alibaba, and then he owns 50% of all the  Alipay, but he's still worth $25 billion so anyway, thank you so much for your time and attention. I really appreciate it. We will be shifting now to to lecture number  nine, which is competitive strategy. So if you think about the evolution of how  we've gotten from there to here. We talked about economic forces, we talked  about monetary policy, we talked about political forces, we talked about legal  forces. We talked about culture and the importance of culture. We talked about  what international business is. We gave you some stat some facts and figures  related to all this talk about how big it is and how complex this environment is,  and how companies want stability. Now we will talk now we will talk about 

competitive strategy. And you were that's the choices that you make that that  relate to deploying resources internationally. Remember that resources are  scarce. Resources are finite. In some cases we even talked about that, where  we talked about natural resources that are finite versus renewable. So that is  where we will be going next. But before we go there, let us do what we always  do, and let us close in prayer. So Heavenly Father, thank you so much for our  time together today. Thank you Lord that we are able to learn about these  concepts and learn about these things. Lord we thank you for giving us the  opportunity to to spend a few minutes at the end of every lecture in your  presence and thank you, Lord, Lord, I just want to, just want to say in this  prayer, thank you. Thank you Lord for everything that you do for all of us. Thank  you, Lord, for giving us the opportunity that we have to learn, to grow. Thank  you, Lord, for the gift of salvation that's free for anybody who wants it, that  forgives people like me a sinner, for the things I do each and every day. Thank  you, Lord, for Your example, for us, for the Holy Spirit which dwells inside us, for the Bible which instructs us, and for the fellowship of fellow believers. Thank  you, Lord, in Jesus. Name Amen. I will see you back here for lecture nine on  competitive advantage. Thank you so much.