MANAGEMENT AND ORGANIZATIONAL BEHAVIOR
Management and Organizational Behavior is the study of the structures of organization as well as the study of people's behavior. Major changes and trends such as globalization, ethics, diversity, and TQM are taking place in organizations, and these will determine the way organizations respond to the needs of its stakeholders. This course will focus on facilitating an understanding of M&OB concepts as they relate to the building the skills-base of individuals and organizations in terms of organizational efficiency, effectiveness, and competitiveness.

BUSINESS STATISTICS
The Business Statistics course introduces students to a range of statistical techniques that are appropriate for and applicable in business practice and decision-making. Students should develop an understanding of how the appropriate use of statistical techniques can add to the value of research done in a business context.

BUSINESS INFORMATION SYSTEMS
Many traditional business processes have been transformed by the digital economy. This course introduces students to information technologies that are used to create and enhance both competitive positioning and effective management practices in business and commerce.
HUMAN RESOURCE MANAGEMENT
This course focuses on the theory and practice of the effective management of human resources to achieve organizational goals and objectives. HR professionals and line managers should understand how best to select, recruit, deploy, train and develop, assess and reward people who work for them, and should understand the complexities of managing change.

ACCOUNTING AND FINANCE FOR DECISION MAKING
This module focuses on the use of accounting information for financial decision-making, and topics covered include stocks transactions, dividends, bonds payables and investment in bonds. It also focuses on the use of accounting information for planning and control and decision-making and includes relevant costing, performance evaluation involving return on investment, transfer pricing, and budgetary control. The subject is designed to provide students with a basic understanding of the cash flow statements, the management of capital expenditure and capital investment decisions.

CUSTOMER RELATIONSHIP MANAGEMENT
This course covers customer relationships management (CRM) and the customer driven, market-based management practices that assist an organization in attracting, satisfying, and retaining customers' profitability. The learners will learn the skills to utilize CRM more accurately in evaluating the marketplace; evaluate competitors and determining the lifetime value of the customer

Chapter 1. Introductory Finance Issues: Current Patterns, Past History, and International Institutions

Economics is a social science whose purpose is to understand the workings of the real-world economy. An economy is something that no one person can observe in its entirety. We are all a part of the economy, we all buy and sell things daily, but we cannot observe all parts and aspects of an economy at any one time.

For this reason, economists build mathematical models, or theories, meant to describe different aspects of the real world. For some students, economics seems to be all about these models and theories, these abstract equations and diagrams. However, in actuality, economics is about the real world, the world we all live in.

For this reason, it is important in any economics course to describe the conditions in the real world before diving into the theory intended to explain them. In this case, in a textbook about international finance, it is very useful for a student to know some of the values of important macroeconomic variables, the trends in these variables over time, and the policy issues and controversies surrounding them.

This first chapter provides an overview of the real world with respect to international finance. It explains not only how things look now but also where we have been and why things changed along the way. It describes current economic conditions and past trends with respect to the most critical international macroeconomic indicators. In particular, it compares the most recent worldwide economic recession with past business cycle activity to put our current situation into perspective. The chapter also discusses important institutions and explains why they have been created.

With this overview about international finance in the real world in mind, a student can better understand why the theories and models in the later chapters are being developed. This chapter lays the groundwork for everything else that follows.

Countries interact with each other in two important ways: trade and investment. Trade encompasses the export and import of goods and services. Investment involves the borrowing and lending of money and the foreign ownership of property and stock within a country. The most important international macroeconomic variables, then, are the trade balance, which measures the difference between the total value of exports and the total value of imports, and the exchange rate, which measures the number of units of one currency that exchanges for one unit of another currency.

Exchange Rate Regimes

Because countries use different national currencies, international trade and investment requires an exchange of currency. To buy something in another country, one must first exchange one’s national currency for another. Governments must decide not only how to issue its currency but how international transactions will be conducted. For example, under a traditional gold standard, a country sets a price for gold (say $20 per ounce) and then issues currency such that the amount in circulation is equivalent to the value of gold held in reserve. In this way, money is “backed” by gold because individuals are allowed to convert currency to gold on demand.

Today’s currencies are not backed by gold; instead most countries have a central bank that issues an amount of currency that will be adequate to maintain a vibrant growing economy with low inflation and low unemployment. A central bank’s ability to achieve these goals is often limited, especially in turbulent economic times, and this makes monetary policy contentious in most countries.

One of the decisions a country must make with respect to its currency is whether to fix its exchange value and try to maintain it for an extended period, or whether to allow its value to float or fluctuate according to market conditions. Throughout history, fixed exchange ratesfixed exchange rateAn exchange rate system in which the rate is fixed at a specified value by the government. have been the norm, especially because of the long period that countries maintained a gold standard (with currency fixed to gold) and because of the fixed exchange rate system (called the Bretton Woods system) after World War II. However, since 1973, when the Bretton Woods system collapsed, countries have pursued a variety of different exchange rate mechanisms.

The International Monetary Fund (IMF), created to monitor and assist countries with international payments problems, maintains a list of country currency regimes. The list displays a wide variety of systems currently being used. The continuing existence of so much variety demonstrates that the key question, “Which is the most suitable currency system?” remains largely unanswered. Different countries have chosen differently. Later, this course will explain what is necessary to maintain a fixed exchange rate or floating exchange ratefloating exchange rateAn exchange rate system in which the rate fluctuates, or floats, because it is determined by supply and demand in the private market. system and what are some of the pros and cons of each regime. For now, though, it is useful to recognize the varieties of regimes around the world.

Table 1.4. Exchange Rate Regimes

Country/Region	Regime
Euro Area	Single currency within: floating externally
United States	Float
China	Crawling peg
Japan	Float
India	Managed float
Russia	Fixed to composite
Brazil	Float
South Korea	Float
Indonesia	Managed float
Spain	Euro zone; fixed in the European Union; float externally
South Africa	Float
Estonia	Currency board

Table 1.4, “Exchange Rate Regimes” shows the selected set of countries followed by a currency regime. Notice that many currencies—including the U.S. dollar, the Japanese yen, the Brazilian real, the South Korean won, and the South African rand—are independently floating, meaning that their exchange values are determined in the private market on the basis of supply and demand. Because supply and demand for currencies fluctuate over time, so do the exchange values, which is why the system is called floating.

Note that India and Indonesia are classified as “managed floating.” This means that the countries’ central banks will sometimes allow the currency to float freely, but at other times will nudge the exchange rate in one direction or another.

China is listed and maintaining a crawling peg, which means that the currency is essentially fixed except that the Chinese central bank is allowing its currency to appreciate slowly with respect to the U.S. dollar. In other words, the fixed rate itself is gradually but unpredictably adjusted.

Estonia is listed as having a currency board. This is a method of maintaining a fixed exchange rate by essentially eliminating the central bank in favor of a currency board that is mandated by law to follow procedures that will automatically keep its currency fixed in value.

Russia is listed as fixing to a composite currency. This means that instead of fixing to one other currency, such as the U.S. dollar or the euro, Russia fixes to a basket of currencies, also called a composite currency. The most common currency basket to fix to is the Special Drawing Rights (SDR), a composite currency issued by the IMF used for central bank transactions.

Finally, sixteen countries in the European Union are currently members of the euro area. Within this area, the countries have retired their own national currencies in favor of using a single currency, the euro. When all countries circulate the same currency, it is the ultimate in fixity, meaning they have fixed exchange rates among themselves because there is no need to exchange. However, with respect to other external currencies, like the U.S. dollar or the Japanese yen, the euro is allowed to float freely.

Trade Balances and International Investment Positions

One of the most widely monitored international statistics is a country’s trade balance. If the value of total exports from a country exceeds total imports, we say a country has a trade surplustrade surplusOccurs when the value of exports exceeds the value of imports during a year.. However, if total imports exceed total exports, then the country has a trade deficittrade deficitOccurs when the value of imports exceeds the value of exports during a year.. Of course, if exports equal imports, then the country has balanced trade.

The terminology is unfortunate because it conveys a negative connotation to trade deficits, a positive connotation to trade surpluses, and perhaps an ideal connotation to trade balance. Later in the text, we will explain if or when these connotations are accurate and when they are inaccurate. Suffice it to say, for now, that sometimes trade deficits can be positive, trade surpluses can be negative, and trade balance could be immaterial.

Regardless, it is popular to decry large deficits as being a sign of danger for an economy, to hail large surpluses as a sign of strength and dominance, and to long for the fairness and justice that would arise if only the country could achieve balanced trade. What could be helpful at an early stage, before delving into the arguments and explanations, is to know how large the countries’ trade deficits and surpluses are. A list of trade balances as a percentage of GDP for a selected set of countries is provided in Table 1.5, “Trade Balances and International Investment Positions GDP, 2009”.

It is important to recognize that when a country runs a trade deficit, residents of the country purchase a larger amount of foreign products than foreign residents purchase from them. Those extra purchases are financed by the sale of domestic assets to foreigners. The asset sales may consist of property or businesses (a.k.a. investment), or it may involve the sale of IOUs (borrowing). In the former case, foreign investments entitle foreign owners to a stream of profits in the future. In the latter case, foreign loans entitle foreigners to a future repayment of principal and interest. In this way, trade and international investment are linked.

Because of these future profit takings and loan repayments, we say that a country with a deficit is becoming a debtor country. On the other hand, anytime a country runs a trade surplus, it is the domestic country that receives future profit and is owed repayments. In this case, we say a country running trade surpluses is becoming a creditor country. Nonetheless, trade deficits or surpluses only represent the debts or credits extended over a one-year period. If trade deficits continue year after year, then the total external debt to foreigners continues to grow larger. Likewise, if trade surpluses are run continually, then credits build up. However, if a deficit is run one year followed by an equivalent surplus the second year, rather than extending new credit to foreigners, the surplus instead will represent a repayment of the previous year’s debt. Similarly, if a surplus is followed by an equivalent deficit, rather than incurring debt to foreigners, the deficit instead will represent foreign repayment of the previous year’s credits.

All of this background is necessary to describe a country’s international investment position (IIP)international investment position (IIP)A measure of the difference between the total value of domestic holdings of foreign assets and the value of foreign assets held in the domestic country., which measures the total value of foreign assets held by domestic residents minus the total value of domestic assets held by foreigners. It corresponds roughly to the sum of a country’s trade deficits and surpluses over its entire history. Thus if the value of a country’s trade deficits over time exceeds the value of its trade surpluses, then its IIP will reflect a larger value of foreign ownership of domestic assets than domestic ownership of foreign assets and we would say the country is a net debtor. In contrast, if a country has greater trade surpluses than deficits over time, it will be a net creditor.

Note how this accounting is similar to that for the national debt. A country’s national debt reflects the sum of the nation’s government budget deficits and surpluses over time. If deficits exceed surpluses, as they often do, a country builds up a national debt. Once a debt is present, though, government surpluses act to retire some of that indebtedness.

The key differences between the two are that the national debt is public indebtedness to both domestic and foreign creditors whereas the international debt (i.e., the IIP) is both public and private indebtedness but only to foreign creditors. Thus repayment of the national debt sometimes represents a transfer between domestic citizens and so in the aggregate has no impact on the nation’s wealth. However, repayment of international debt always represents a transfer of wealth from domestic to foreign citizens.