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Regional economic integration, foreign exchange market (Foreign exchange…

- - - - European free trade association(EFTA): Norway, Iceland, Liechtenstein
      - North America free trade agreement(NAFTA): US, Canada & Mexico
    - - Andean pact: Bolivia, Columbia, Ecuador, Peru
    - - MERCOSUR: brazil, argentina, paraguay, uruguay (treaty)
    - - European union(EU)
    - - EU head towards PARTIAL political union
  - - - ↓ chances of violent conflict
      - countries have GREATER political power when dealing w another country
  - - - trade creation: occur when LOW cost producers replace HIGH cost domestic producer in free trade area
      - trade diversion: occur when HIGHER cost suppliers replace LOWER cost ext. supplier in free trade area
  - - - savings from handling 1 currency instead of >1
      - easier to compare price across & firm forced to be more competitive
      - ↑ range of investment options to indi & firms
    - - lose control over national monetary policy
      - EU not optimal currency area
  - - - association of southeast asian nations(ASEAN): promote free trade & achieve cooperation in industrial policies
        
        ASEAN free trade area(AFTA) effective in 2003
        
        sg,malaysia, vietnam, indo, brunei, cambodia
      - asia pacific economic cooperation(APEC): want to
        ↑ multilateral cooperation
        
        21 member include US, jap, china
        
        member a/c 55% of world GNP & 49% of trade
  - - - new market
      - firm know about cost economies by centralising production in location where MIX of factor costs & skills are optimal
    - - in each grouping: biz envt more competitive
      - risk of being SHUT OUT of market by creation of 'trade fortress;
- - - - firm can turn to counter trade: agreement to trade goods for goods
  - - - include obligation to buy/sell pdt at PREVIOUSLY agreed prices
    - - concern w PRESENT measurement of PAST events
    - - concern w LT effect of exchange rate changes on future price, sales & costs